Epic Lehman CDS Auction Tomorrow: Timeline

Here is (according to Reuters) the timeline for what will be an epic CDS auction tomorrow related to the Lehman bankruptcy. There are huge losses to go around, confusion about counter-parties, and I expect a host of releases tomorrow afternoon as people disclose their newfound liabilities.

9:45 a.m.-10 a.m. Auction participants will submit bids and offers for the debt backing the credit default swaps, which will be used to determine the initial recovery rate of the swaps.

10:30 a.m. Auction administrators Creditex and Markit will publish the initial recovery price and the open interest for the contracts will be published. The open interest reflects the amount of bids and offers that have been made, and will show if there are more buyers than sellers, or vice versa.

12:45 p.m. -1 p.m. Participating dealers will submit limit orders for the debt on behalf of themselves and their clients to fill the open interest

2 p.m. The final price of the auction will be published.

Most people expect prices in the 12- to 13-cents on the dollar range, leading to payouts in the $400-billion range.

Comments

[Larry House:]

I hope the auction goes well. I hold some LEH bonds. Maybe I will get a few cents back some day.

2008 Oct 09 04:31 PM

[ts2:]

Please - Can someone explain:
1) who will make money from this and what amount
2) who will lose money from this and what amount

Many Thanks

2008 Oct 09 05:16 PM

[#VALUE!:]

Thanks, v interesting article.
Does anyone have a ranking of the global protection writers in the recent years ?

2008 Oct 10 10:42 AM

[pcyhuang:]

Lehman's CDS - -- $400 Billion Notional Value Reduced to $8 Billion After Netting


For those people still interested in what happened today in the Lehman CDS auction today it was not the financial atomic bomb everyone expected. The entire cost of the nearly $400 Billion in CDS outstanding would up being only $8 Billion total once all the paperwork was worked out. It seems that banks bought/sold CDS from themselves. I'm sure there is some arcane accounting benefit to this that allowed them to profit but I'm not sure what it would be.

"It won't be easy to draw up a quick winners and losers column, however. Buyers of insurance are also sellers and vice versa. The International Swaps and Derivatives Association says all this netting out means the ultimate payout among trading partners may be closer to 2% of the gross outstanding $400 billion, or $8 billion."

I think the financial markets could breath a sigh of relief that there wasn't a giant smoking hole in the financial industry today. This may account for the end of day rally to some degree. It looks like we may get through this bloodied but not dead.

Full Story: messages.finance.yahoo...

Cheers,

2008 Oct 10 11:34 PM