Abengoa Credit-Default Swaps Triggered After Missed Payments

Abengoa SA’s failure to make commercial paper payments will trigger derivatives insuring $676 million of its debt, after a ruling by the International Swaps & Derivatives Association.

Credit-default swaps on the Spanish renewable energy provider will be settled at an auction next year, ISDA’s determinations committee said in a statement on its website. There were 2,467 trades covering a net debt outstanding as of Dec. 4, Depository Trust & Clearing Corp. data show.

A group of 15 dealers and money managers that govern the market ruled that a credit event occurred after Abengoa missed the equivalent $15 million of payments. The company, which has 8.9 billion euros ($9.8 billion) of gross debt, filed for preliminary creditor protection last month and is in discussions with lenders to line up funds to avoid insolvency.

“It’s a good outcome for banks and other creditors who hedged their holdings in the company,” said Maxime Kogge, a credit analyst at Spread Research in Lyon, France. “That won’t make them more willing to take a haircut on the debt or to invest more money.”

While Abengoa has until March to reach an agreement with creditors under Spanish bankruptcy law, failure to obtain funding may force it into insolvency proceedings before then.

The company said in a statement on Thursday that it didn’t make payments on six notes denominated in euros and dollars issued under its 750 million-euro commercial paper program.

Before the ruling, it cost 9.3 million euros in advance to insure 10 million euros of Abengoa bonds for five years, according to S&P Capital IQ’s CMA. That’s in addition to 500,000 euros annually, and it implied a 96 percent likelihood of default.

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