Vincent Fernando

Gannett, McClatchy Face Stubborn Bondholders: A Creative Solution

The CDS sellers would want to keep Gannett and McClatchy from defaulting, since if they default the sellers will have to pay the CDS buyers 100 cents on the dollar for Gannett and McClatchy bonds (which will be worth much less than 100 cents on the dollar... note McClatchy tried to buy back its bonds at 33 cents on the dollar). Thus go to the sellers and see if they can help keep these companies from defaulting. If the selllers were banks, then perhaps they can provide loans so that Gannett and McClatchy can pay back bonds as they mature and stay out of default. In this situation the CDS sellers provide a loan for 100 cents on the dollar rather than simply paying out a loss of 100 cents on the dollar. This is a much better proposition.

As to whether other newspapers have a problem it depends on what % of their bondholders have CDS protection.