Credit default swaps (CDSs) referencing Smurfit-Stone Container saw recovery rates of 8.875%, meaning protection sellers would need to pay protection buyers who opted for cash settlement at 91.125% of the par value of the CDS contracts.
Recovery rates for loan-only credit default swaps (LCDSs) referencing the company were set at 65.375%.
Because the auction procedure is not hardwired in the standard CDS contract, protocols are required to cash settle CDS and LCDS trades.
On Thursday, February 26, an auction will be held to settle LCDS on Italian luxury yacht manufacturer Ferretti after the company announced on February 2 that it was renegotiating its loan arrangements with Royal Bank of Scotland.
This will be the third-ever cash settlement auction held on European LCDS.