Codere Bonds Get Initial Value of 48% in Default Swaps Auction

Sellers of credit-default swaps on Codere SA may have to pay 51.875 cents on the euro to settle contracts triggered by the company’s failure to make a timely bond payment last month.

Dealers set an initial value of 48.125 percent of face value at an auction for the Madrid-based gaming company’s bonds today, according to administrators Markit Group Ltd. and Creditex Group Inc. The auction is being held under the rules of the International Swaps & Derivatives Association and a final rate will be determined at 3:30 p.m. in London.

Codere’s credit-default swaps are being settled because the company, which has debts totaling 1 billion euros ($1.35 billion), paid a coupon on $300 million of 9.25 percent bonds two days after the end of a 30-day grace period. The issue has rattled the derivatives market because debt insurance holders are being compensated for losses that haven’t been incurred.

“The risk is that if you have these sort of upsets, it reduces liquidity because specialist players are less willing to get involved,” said Michael Hampden-Turner, a credit analyst at Citigroup Inc. in London. “Certainly people will be unhappy, but the contract worked the way it should.”

Codere’s 9.25 percent bonds due February 2019 were trading at 49.25 cents on the dollar yesterday, according to Bloomberg prices.

Sellers of protection will pay buyers face value in exchange for the underlying securities or the cash equivalent. The results of the auction are posted on, a website run by Creditex, a New York-based derivatives broker, and financial information provider Markit.

There were 2,951 default swaps contracts covering a net $432 million of Codere’s debt as of Oct. 4, according to the Depository Trust & Clearing Corp. There were 34 trades covering a gross $112 million of Codere’s debt last week.

The company was also included in 13 versions of the Markit iTraxx Crossover Index and new versions of those benchmarks now trade without it, according to Markit.

To contact the reporter on this story: Abigail Moses in London at

To contact the editor responsible for this story: Shelley Smith at

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