Cemex: CDS Triggered

Dec.15.09 | About: Cemex, S.A.B. (CX)

Piece of news hit the tape yesterday:

Credit-default swaps on Cemex SAB, the largest cement maker in the Americas, were triggered by a so-called restructuring credit event, according to the International Swaps & Derivatives Association.

The ruling was made by a group of independent arbitrators after a committee of credit-default swap dealers and investors was unable to agree whether to reimburse investors for the debt insurance contracts, according to New York-based ISDA. It’s the first time a regional committee has passed a ruling to an external review panel since the groups were created this year.

Cemex, based in Monterrey, Mexico, extended the maturities on $15 billion of debt in August. The independent panel deemed the refinancing to be an event allowing buyers of default swap to demand payment, ISDA said in a statement on its Web site.
The Americas determinations committee will vote whether to settle the contracts at auction, ISDA said.

So it looks like the Mod-R feature of CDS does in fact work. It is surprising that it took this long to get a ruling from the arbitrators as the debt was extended, recovenanted and now amortizes. What should be interesting is that if creditors were paid up front to refinance the debt (as JPM reported a consent fee of 200bps on 8/20/09), are the writers of CDS entitled to those proceeds. If you get the consent fee + par on CDS, life is good.

Recently, Cemex (NYSE:CX) priced more than $1.75 billion debt as part of a plan to repay outstanding debt. The group priced 7-year U.S. dollar denominated bonds with a coupon of 9.5 percent annually while the euro-denominated debt will have a coupon worth 9.625 percent a year. This debt has the same package as the restructured debt (as it is essentially replacing it).

So, two observations:

  1. Mod-R works, and it can be tricky;
  2. You can be "B" rated and get debt off below 10%.

Who said the credit markets aren't working?

Disclosure: no positions