NEW YORK — Sellers of insurance on bonds issued by bankrupt Lehman Brothers Holdings Inc. are likely to face demands that they pay out more than 91 cents on the dollar to buyers of those insurance contracts.
That’s the upshot of an unusual auction process Friday that established the price for defaulted Lehman debt, and in turn potential claims payouts on insurance protecting that debt, known as credit default swaps.
Certainly, some firms will take a hit because of the pricing, potentially amounting to billions of dollars in combined losses. In the Lehman auction, participants included most major financial firms from around the world. But it’s too early to tell which companies will be on the hook or for how much.
The auction set the price on $4.92 billion of debt issued by now-bankrupt Lehman at 8.625 cents on the dollar. Lehman bonds had been trading near that range in the past few weeks, meaning Friday’s auction price further reinforces current market values for the debt and in turn the credit default swaps.
