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<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>September 15, 2008, 10.32 pm (Singapore time)
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Latest update
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Lehman bankruptcy triggers payments on its CDS
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NEW YORK - Sellers of protection on Lehman Brothers debt may recover as little as 30 US cents on the dollar, after payments on its credit default swaps were triggered by its bankruptcy.
Analysts estimate there may be tens of billions of dollars in credit default swap volumes written on Lehman debt. Lehman's failure sent spreads on banks and brokers higher across the board, analysts and traders said.
Lehman filed for bankruptcy protection early on Monday, making it the largest casualty of the global credit crisis.
'The CDS was triggered because of the filing,' said Ricardo Kleinbaum, analyst at BNP Paribas in New York.
Credit default swaps are used to hedge against the risk of a borrower defaulting on their debt, or to speculate on a company's credit quality.
When a borrower defaults on their debt the protection seller pays the full amount insured and the buyer gives the seller the defaulted debt, or cash equivalents.
Protection buyers seek out the cheapest debt they can use to settle the contracts.
Lehman's bonds plunged over the weekend as the bankruptcy filing became more likely, with its debt on Monday in many cases trading in the 30-to-35 cents on the dollar range, according to MarketAxess.
For example, Lehman's 6.2 per cent bond due 2014 fell to 35.5 cents on the dollar on Monday, from 84 cents on Thursday, MarketAxess data shows.
'Everybody's scrambling to work out recovery value,' said Mr Kleinbaum. He said one of the challenges will be determining the value of Lehman Brothers' assets, which could plummet in value if they are forced into a fire sale situation.
Tim Backshall, chief strategist at Credit Derivatives Research, estimates that Lehman's senior unsecured debt may recover in the region of 40 cents on the dollar, with its subordinated debt likely to be wiped out.
Lehman Brothers has about US$613 billion in outstanding liabilities, including about US$149 billion of corporate bonds, according to a May 31 company filing. -- REUTERS
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<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>September 15, 2008, 10.32 pm (Singapore time)
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Latest update
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Lehman bankruptcy triggers payments on its CDS
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20>
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</TD><TD>Feedback</TD></TR></TBODY></TABLE>NEW YORK - Sellers of protection on Lehman Brothers debt may recover as little as 30 US cents on the dollar, after payments on its credit default swaps were triggered by its bankruptcy.
Analysts estimate there may be tens of billions of dollars in credit default swap volumes written on Lehman debt. Lehman's failure sent spreads on banks and brokers higher across the board, analysts and traders said.
Lehman filed for bankruptcy protection early on Monday, making it the largest casualty of the global credit crisis.
'The CDS was triggered because of the filing,' said Ricardo Kleinbaum, analyst at BNP Paribas in New York.
Credit default swaps are used to hedge against the risk of a borrower defaulting on their debt, or to speculate on a company's credit quality.
When a borrower defaults on their debt the protection seller pays the full amount insured and the buyer gives the seller the defaulted debt, or cash equivalents.
Protection buyers seek out the cheapest debt they can use to settle the contracts.
Lehman's bonds plunged over the weekend as the bankruptcy filing became more likely, with its debt on Monday in many cases trading in the 30-to-35 cents on the dollar range, according to MarketAxess.
For example, Lehman's 6.2 per cent bond due 2014 fell to 35.5 cents on the dollar on Monday, from 84 cents on Thursday, MarketAxess data shows.
'Everybody's scrambling to work out recovery value,' said Mr Kleinbaum. He said one of the challenges will be determining the value of Lehman Brothers' assets, which could plummet in value if they are forced into a fire sale situation.
Tim Backshall, chief strategist at Credit Derivatives Research, estimates that Lehman's senior unsecured debt may recover in the region of 40 cents on the dollar, with its subordinated debt likely to be wiped out.
Lehman Brothers has about US$613 billion in outstanding liabilities, including about US$149 billion of corporate bonds, according to a May 31 company filing. -- REUTERS
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