AMR Debt Value Set at 23.5 Cents in Credit-Default Swaps Auction

Credit derivatives traders settling contracts that protected against a default by AMR Corp. set a value of 23.5 cents on the dollar for the debt of the American Airlines parent.

The price, the result of a final round of bidding by 13 dealers including JPMorgan Chase & Co. and Deutsche Bank AG, means sellers of the swaps would pay 76.5 cents on the dollar to buyers of protection to settle the contracts, according to data posted on the website of administrators Markit Group Ltd. and Intercontinental Exchange Inc.’s Creditex division.

A net demand to buy $119.5 million of the bonds was matched with orders from the dealers and their clients, according to the auction website. The debt was initially valued at 22 cents on the dollar during a first round of the auction this morning.

Sellers of the contracts, used to hedge against losses or speculate on creditworthiness, pay the buyer face value of the amount being protected, less the value of the underlying debt.

Fort Worth, Texas-based AMR filed for bankruptcy on Nov. 29 after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S. The company listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed in U.S. Bankruptcy Court in Manhattan.

Banks, hedge funds and other institutional investors had bought or sold a net $337.6 million of protection against an AMR default as of Dec. 9, down from $366.6 million through Nov. 25, according to the Depository Trust & Clearing Corp., which runs a central repository for the credit swaps market.

AMR also was one of 100 companies in older versions of the Markit CDX North America High Yield Index, on which investors bought or sold a net $131.5 billion of protection, DTCC data show.