At an auction held today, data vendor Markit and broker Creditex determined a final settlement value of 10.875% for loan-only credit default swaps (LCDS) referencing Italian luxury yacht manufacturer Ferretti, meaning protection sellers would need to pay protection buyers who opted for cash settlement 89.125% of the par value of the LCDS contracts.
Because the auction procedure is not hardwired in the standard CDS contract, protocols are required to cash settle CDS and LCDS trades. The company breached its loan agreements with the Royal Bank of Scotland, triggering a credit event.
This was the third-ever cash settlement auction held on European LCDS.
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