SELLERS OF insurance against a default by Irish Life & Permanent will have to pay out after the International Swaps and Derivatives Association ruled yesterday that a restructuring credit event had occurred with respect to the bancassurer.
The ruling means one or more auctions will be held to settle IL&P credit default swaps, which are used to insure against a default.
Credit default swaps on IL&P have a net notional volume of $276.8 million (€193.4 million), according to data from the Depository Trust Clearing Corporation.
A credit event is financial industry jargon for default on payment, breach of bond covenants or other events that cast doubt on an issuer’s ability to service its debt.
The swaps and derivatives association said the credit event happened on July 1st when IL&P announced an 87 per cent take-up of a heavily discounted offer for its junior debt.
IL&P is hoping to generate about €1 billion by imposing losses on junior bondholders.
The association in June ruled that a restructuring event had occurred in relation to AIB after it did not pay the coupon on a lower Tier 2 note. A week later it upgraded the credit event to the more serious “failure to pay”.
Last year, sellers of credit default swaps for Anglo Irish Bank paid out about 82 per cent of the subordinated debt they had offered insurance on, after it was decided the nationalised lender would not fully meet its obligations. – (Reuters)
