By Jane Baird
LONDON, Nov 20 (Reuters) - Holders of $7.3 billion in credit protection on Thomson SA who spurned an opportunity to settle for cash last month have seen their contracts triple in value on fears for the company's restructuring plan.
The credit default swaps (CDS) settlement auction on Oct. 22 brought new investors into the ranks of Thomson's creditors, who may push the French media technology firm into sauvegarde, a French legal proceeding similar to the U.S.'s Chapter 11, rather than approve its restructuring plan, BNP Paribas analysts said in a report.
Spreads on five-year CDS on Thomson have widened to around 3,005 basis points from 1,072 basis points on Oct. 14, the day after the deadline for buyers to trigger settlement of contracts in the first auction, according to data from Markit.
Around two thirds of all Thomson CDS contracts were settled in the auction, which was a test case of the new Small Bang protocol for settling CDS after a restructuring, rather than a default.
But the auction itself may have opened up the company to the risk that its restructuring plan could fall apart, leading to yet another CDS auction.
When contacted by Reuters a spokeswoman at Thomson said no one was immediately available to comment.
Thomson has set a deadline of late November for creditors to sign off on a debt-for-equity restructuring plan agreed in July.
A waiver agreed by the creditors is set to expire on Nov. 30.
For the plan to be accepted Thomson must get signatures from two thirds of the holders of about 1 billion euros ($1.5 billion) of private placement notes and of 500 million euros of perpetual securities, who vote together as a single class, BNP Paribas said.
HEDGE FUNDS, PROP DESKS
'We believe a certain amount of private placements are held by basis holders whose interest is for the company to file for sauvegarde, thereby triggering the CDS and causing another auction,' wrote BNP Paribas special situations analyst Belle Yang.
Basis holders are investors such as hedge funds who aim to take advantage of pricing differences between CDS and cash bonds on the same credit.
If Thomson does not get the high percentage approval it needs, 'the only alternative would be to use a 'pre-pack' sauvegarde to cram down dissenting creditors,' Yang said.
More than 804 million euros of Thomson debt, most of it probably the private placements, changed hands in the auction, BNP Paribas said.
'If enough holders of these bonds also hold CDS as we expect, the likelihood of a sauvegarde filing is even greater,' Yang said.
CDS spreads on Thomson are now even wider than they were in the month leading up to the Oct. 22 auction. The level was 2,518 basis points on Oct. 13, the deadline for buyers of protection to trigger settlement.
'Those protection buyers who decided to hold onto their contracts are much better off,' said Michael Hampden-Turner, a credit strategist at Citigroup.
As of Nov. 13, 1,543 contracts remained, amounting to a gross notional exposure of $7.29 billion and a net $942 million, according to the latest data from the Depository Trust & Clearing Corp. (DTCC)
A month ago, before the auction, there were 5,067 contracts at a gross notional exposure of $21.2 billion and net $2.05 billion.
Buyers of protection who did trigger settlement got widely differing results from the auction.
Those with CDS contracts maturing in up to 2.5 years got a cash payout of only 3.75 percent of notional value, while those with longer maturities got around 35 percent.
($1=.6733 euros)
(Editing by Andrew Callus and Greg Mahlich) Keywords: THOMSON/CDS (jane.baird@thomsonreuters.com, Reuters Messaging: jane.baird.reuters.com@reuters.net, +442075422471) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, Nov 20 (Reuters) - Holders of $7.3 billion in credit protection on Thomson SA who spurned an opportunity to settle for cash last month have seen their contracts triple in value on fears for the company's restructuring plan.
The credit default swaps (CDS) settlement auction on Oct. 22 brought new investors into the ranks of Thomson's creditors, who may push the French media technology firm into sauvegarde, a French legal proceeding similar to the U.S.'s Chapter 11, rather than approve its restructuring plan, BNP Paribas analysts said in a report.
Spreads on five-year CDS on Thomson have widened to around 3,005 basis points from 1,072 basis points on Oct. 14, the day after the deadline for buyers to trigger settlement of contracts in the first auction, according to data from Markit.
Around two thirds of all Thomson CDS contracts were settled in the auction, which was a test case of the new Small Bang protocol for settling CDS after a restructuring, rather than a default.
But the auction itself may have opened up the company to the risk that its restructuring plan could fall apart, leading to yet another CDS auction.
When contacted by Reuters a spokeswoman at Thomson said no one was immediately available to comment.
Thomson has set a deadline of late November for creditors to sign off on a debt-for-equity restructuring plan agreed in July.
A waiver agreed by the creditors is set to expire on Nov. 30.
For the plan to be accepted Thomson must get signatures from two thirds of the holders of about 1 billion euros ($1.5 billion) of private placement notes and of 500 million euros of perpetual securities, who vote together as a single class, BNP Paribas said.
HEDGE FUNDS, PROP DESKS
'We believe a certain amount of private placements are held by basis holders whose interest is for the company to file for sauvegarde, thereby triggering the CDS and causing another auction,' wrote BNP Paribas special situations analyst Belle Yang.
Basis holders are investors such as hedge funds who aim to take advantage of pricing differences between CDS and cash bonds on the same credit.
If Thomson does not get the high percentage approval it needs, 'the only alternative would be to use a 'pre-pack' sauvegarde to cram down dissenting creditors,' Yang said.
More than 804 million euros of Thomson debt, most of it probably the private placements, changed hands in the auction, BNP Paribas said.
'If enough holders of these bonds also hold CDS as we expect, the likelihood of a sauvegarde filing is even greater,' Yang said.
CDS spreads on Thomson are now even wider than they were in the month leading up to the Oct. 22 auction. The level was 2,518 basis points on Oct. 13, the deadline for buyers of protection to trigger settlement.
'Those protection buyers who decided to hold onto their contracts are much better off,' said Michael Hampden-Turner, a credit strategist at Citigroup.
As of Nov. 13, 1,543 contracts remained, amounting to a gross notional exposure of $7.29 billion and a net $942 million, according to the latest data from the Depository Trust & Clearing Corp. (DTCC)
A month ago, before the auction, there were 5,067 contracts at a gross notional exposure of $21.2 billion and net $2.05 billion.
Buyers of protection who did trigger settlement got widely differing results from the auction.
Those with CDS contracts maturing in up to 2.5 years got a cash payout of only 3.75 percent of notional value, while those with longer maturities got around 35 percent.
($1=.6733 euros)
(Editing by Andrew Callus and Greg Mahlich) Keywords: THOMSON/CDS (jane.baird@thomsonreuters.com, Reuters Messaging: jane.baird.reuters.com@reuters.net, +442075422471) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.