Low recovery rates set for Aleris International LCDS

Final settlement values for credit derivatives trades referencing Ohio-based aluminum products manufacturer Aleris International were determined during an auction held today by data vendor Markit and broker Creditex.

Recovery rates on loan-only credit default swaps (LCDSs) referencing the company were set at 8%, meaning protection sellers would need to pay protection buyers who opted for cash settlement 92% of the par value of the LCDS contracts.

Financial constraints caused by a slowdown in industrial production and falling aluminum prices led the company to file for Chapter 11 bankruptcy protection on February 12.

Currently, individual protocols are required to cash-settle CDS and LCDS trades because the auction procedure is not hardwired into the standard CDS contract.

This Thursday (March 12), the International Swaps and Derivatives Association will publish its auction settlement supplement, which will hardwire CDS settlement auction terms after a default or credit event. The supplement will also include precise definitions on what constitutes a credit event, whether an auction will be held, and whether obligations are deliverable.

See also: Isda to publish auction settlement supplement, launches close-out protocol
Low recovery rates set for Ferretti LCDS
Auctions held for CDSs referencing Nortel Networks
Auction sets values on British Vita LCDS

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here