When claims of a company as big as Energy Future Holdings going bankrupt surface, it is only natural to expect investors to plough into the CDS and that is exactly what happened to Energy Future and its subsidiary Texas Competitive Electric Holdings Company LLC.
Both companies, formerly of the TXU leveraged buyout, made their first appearance in the active list for the week ended March 4, 2011 after claims first surfaced at the end of the previous week about Energy Future and Texas Competitive being in default.
While both sides are at odds, expect the names to continue to be active as hedge fund Aurelius which first went public with the claims has threatened to go to court and attempt to have it rule upon its assertion.
Swaps on Energy Future increased 2.2 percentage points to 48.5 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $4.85 million initially and $500,000 annually to protect $10 million of the company’s debt. Contracts on Texas Competitive Electric, a unit of Energy Future, rose 1.6 percentage points to 55.3 percent upfront, CMA data show…….
TXU’s $1.87 billion of 10.25 percent bonds due in 2015 fell 1.75 cents to 53.5 cents on the dollar and have declined from 62 cents on Feb. 24, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
One-year protection on Energy Future climbed 0.55 percentage point to 12.85 percent upfront and one-year contracts on Texas Competitive climbed 0.3 percentage point to 13.2, CMA data show.
Energy Future saw $673 million worth of credit default swaps trade while Texas Competitive saw $725 million trade over the week – both reported new weekly highs.
Other active corporates include MBIA Insurance, Banco Santander, Banca Monte dei Paschi di Siena, Continental, Enel, E.ON, Banco Bilbao Vizcaya Argentaria (BBVA), Gas Natural SDG and GDF Suez.