Initial Results Out On Agency Credit Default Swaps Auctions
10/06 11:06 AM
NEW YORK (Dow Jones)--Initial results of auctions Monday morning to settle credit default swaps on Fannie Mae (FNM:$1.0700,$-0.2700,-20.15%) and Freddie Mac (FRE:$1.2300,$-0.2600,-17.45%) are pegging prices between 92 and 94 cents on the dollar.
Initial settlement prices on CDS written on Freddie Mac (FRE:$1.2300,$-0.2600,-17.45%) senior and subordinated debt are higher than those written on Fannie Mae (FNM:$1.0700,$-0.2700,-20.15%) . For Freddie Mac (FRE:$1.2300,$-0.2600,-17.45%) , the price on the senior debt is 93.75 cents on the dollar and on the subordinated, 93.8 cents. On Fannie's senior debt the initial settlement price is 92.4 cents on the dollar, and for the subordinated debt, 92.65 cents.
Final results will be published by 4 p.m. EDT on www.creditfixings.com by auction administrators Creditex and Markit.
The U.S. government takeover of Fannie and Freddie triggered a technical default on credit default swaps of the failed mortgage finance giants. About $ 200 billion to more than $1 trillion in CDS are estimated to have been written on the agencies' senior and subordinated debt.
When a CDS is deemed to be in default, settlements can be physical, where the defaulted bond is exchanged for the par amount of the bond, or in cash, where the protection-seller pays investors the difference between the face value and the market value of the bonds.
Since Fannie and Freddie debt have rallied since the two firms were placed under conservatorship, sellers of CDS were expected to have only limited payouts to their counterparties.
There were 651 participants in the auctions, according to trade group International Swaps and Derivatives Association, which published the procedures for them.
Next up for the CDS market is settling contracts written on Lehman Brothers (LEHMQ:$0.1450,$-0.0250,-14.71%) , which filed for bankruptcy last month. That auction is tentatively scheduled for Friday. The auction for Washington Mutual (WAMUQ:$0.1300,$-0.0250,-16.13%) is tentatively scheduled for Oct. 23.
-By Romy Varghese, Dow Jones Newswires; 201-938-4287; romy.varghese@ dowjones.com
(Emily Barrett and Serena Ng of the Wall Street Journal contributed to this report.)
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(END) Dow Jones Newswires
10-06-081106ET
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