Insurers Of Tribune Debt Spanked At First Post-Bankruptcy Auction

Fitz: The first post-bankruptcy auction to settle credit derivative contracts written on Tribune Co. bonds and debt was held this week -- and the results were as ugly as credit ratings agencies had predicted.

Wall Street Journal reporter Matthew Cowley presents the grim details in a clearly written article on the first fallout for investors in Tribune debt since the Chicago media giant filed for bankruptcy protection in December.

In a nutshell, the auctions placed a value of just 1.5% on the face value of Tribune Co. bonds, so investors who sold insurance protection on the bonds will have to pay $98.50 for every $100 of face value.

That’s in line with the predictions of Standard & Poor’s, Moody’s Investors and Fitch Ratings, which all warned that bondholders could expect a “negligible” recovery ranging from zero to 10%.  

Interestingly, Cowley notes that the auction for Tribune loan credit default swaps -- LCDS for you financial acronym fans -- was set at 23.75% of face value for the firm's loans. Better than the unsecured bonds, yeah, but S&P for one figured lenders to the senior secured credit facilities could expect a recovery value of 30% to 50%.