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Victor Japan Credit-Default Swaps Triggered by Restructuring

Credit-default swaps insuring debt of Victor Company of Japan Ltd., a unit of JVC Kenwood Corp., will be paid out after the manufacturer restructured payment on its debt, the International Swaps & Derivatives Association said.

Victor triggered a so-called restructuring credit event when it agreed with its bondholders to extend the maturity of 12 billion yen ($156 million) in bonds last month, ISDA’s Japan Determinations Committee ruled yesterday. Out of 15 committee members, Goldman Sachs Group Inc. and JPMorgan Chase & Co. voted against the decision.

The committee’s ruling came after four meetings failed to reach a conclusion. This is the first credit event in Japan since consumer lender Takefuji Corp.’s bankruptcy triggered payout of the swaps in October 2010, and the first restructuring event since Aiful Corp. won approval from creditors for a debt restructuring plan in December 2009.

“The issue seems to have been whether the restructuring is due to the deterioration in Victor’s financial affairs or not,” said Akira Nomura, a credit analyst at Mizuho Securities Co. “Since the company used to be a member of the Markit iTraxx Japan index, an auction to settle the swaps is likely to be held.”

A net $314.7 million of protection on Victor was outstanding as of Sept. 16, the latest data from Depository Trust & Clearing Corp. show.

Credit-default swaps, which pay the buyer face value if a borrower fails to meet its obligations, fall as perceptions of creditworthiness improve and rise as they deteriorate. A basis point equals $1,000 annually on a contract protecting $10 million of bonds and loans.

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