Credit-default swaps traders set a value of 83 cents on the dollar for loans of Georgia Gulf Corp. (GGC) to settle derivatives protecting against a default by North America’s biggest maker of vinyl construction products.
The price, set during an auction among 10 dealers including Deutsche Bank AG and Bank of America Corp., means sellers of credit swaps on Georgia Gulf will pay 17 cents on the dollar to the buyers of the contracts, according to data from auction administrators Markit Group Ltd. and broker Creditex Group Inc.
Georgia Gulf triggered payouts on the swaps when it failed to make a bond interest payment within a 30-day grace period that expired May 15. The Atlanta-based company was included in the LCDX indexes linked to the secured loans of 100 companies, which allow banks, hedge funds, insurance companies and other investors to hedge against losses on the debt or to speculate on creditworthiness.
Georgia Gulf said on May 13 that the majority of creditors agreed to extend forbearance until June 15 on $34.5 million of interest due on bonds that are part of exchange offers as the company seeks to avoid a bankruptcy filing. The offers are set to expire June 15, the company said in a June 1 statement.
The final loan value was up from an initial mid-point price of 81.125 cents after a first round of bidding, according to Markit and Creditex.
Credit swaps sellers are required to pay the difference between the amount of debt the contract covers and the value of the debt determined during the auction. A committee of dealers and investors opted not to hold an auction to determine a price to settle contracts linked to Georgia Gulf’s unsecured debt, though payouts on those contracts also were triggered.