Lehman Settles CDSs for 8.625 Cents on the Dollar

From the Journal...

"The recovery rate on the bankrupt firm's senior debt was fixed at 8.625 cents on the dollar, just below the 9.75 cents published in the first estimate Friday. That means the sellers of insurance on these defaulted bonds are on the hook for the remaining 91.375 cents. That's well above the approximate 88 cents envisaged earlier this week, when increased demand for paper to present in return for compensation inflated the market price."

This isn't making big waves in the financial media yet, despite the fact that everyone in-the-know was well cued up for this. That's an unexpected good sign.

Dwight Cass on Lehman CDSs Today

We should know how this pans out by 2pm EST today...

"Lehman, which filed for bankruptcy in mid-September, has about $113bn of bonds outstanding, according to Reuters Knowledge. It’s impossible to know how much protection has been written on that debt, since credit derivatives are privately negotiated and not all protection buyers hold the underlying debt. It’s likely that the amount of CDS linked to Lehman is at least several times the size of its borrowings.

The Lehman CDS auction process is set for Friday [today]. Large amounts of cash are likely to change hands as a result. But since there’s a winner for every loser in this market, the net effect on the financial system should be minimal. Except that no-one knows if all the losers will be able to pay – and that’s what has Wall Street worried."

Full piece here.