Credit derivatives traders settling contracts that protected against a default by Residential Capital LLC set a value of 17.625 cents on the dollar for the debt of Ally Financial Inc. (ALLY:US)’s mortgage unit.
The price, the result of a final round of bidding by 12 dealers including JPMorgan Chase & Co. and Deutsche Bank AG, means sellers of the swaps would pay 82.375 cents on the dollar to buyers of protection to settle the contracts, according to data posted on a website of auction administrators Markit Group Ltd. and Intercontinental Exchange Inc.’s Creditex division.
A net demand to buy $29 million of the bonds was matched with orders from the dealers and their clients after an initial market mid-price of 18.625 cents was set in the auction’s first round.
Sellers of the contracts, used to hedge against losses or speculate on creditworthiness, pay the buyers face value of the amount being protected, less the value of the underlying debt.
The International Swaps and Derivatives Association’s determinations committee had said ResCap’s May 14 bankruptcy filing triggered payouts on the swaps.
Banks, hedge funds and other institutional investors had bought or sold a net $1.2 billion of protection against a ResCap default as of June 1, according to the Depository Trust & Clearing Corp., which runs a central repository for the credit swaps market.
The mortgage lender listed $15.7 billion in assets and $15.3 billion in debt in Chapter 11 papers filed in U.S. Bankruptcy Court in Manhattan.
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