Yesterday, the International Swaps and Derivatives Association (ISDA) held an auction to determine the pricing for the settlement of credit default swaps (CDS) on Washington Mutual, Inc. for parties agreeing to settle those CDS through ISDA’s settlement protocol process. According to the final results of the auction conducted by Creditex Group Inc. and Markit Group Ltd., together with fourteen major credit derivative dealers, sellers of CDS on Washington Mutual will have to pay 43 cents on the dollar to CDS purchasers. The credit derivative dealers, which included Barclays, Deutsche Bank, Goldman Sachs, and Royal Bank of Scotland, among others, had a net interest of $988 million in Washington Mutual bonds to sell. The recovery rate on the senior debt of now-bankrupt Washington Mutual was fixed at 57 cents on the dollar, which was lower than the initial estimate of 63.625 cents published earlier in the day. ISDA had previously issued a set of FAQs for the auction, conducted in accordance with the ISDA 2008 Washington Mutual CDS Protocol, which provides a complete list of adhering parties and participating bidders in the auction.
In addition to the Washington Mutual auction today, ISDA has coordinated several auctions this month, including for Lehman Brothers, Fannie Mae and Freddie Mac. Between November 4 and 6, along with Creditex and Markit, ISDA will coordinate auctions in Europe to facilitate the settlement of CDS contracts referencing failed Iceland banks Landsbanki Íslands hf , Glitnir Banki hf, and Kaupthing Banki hf.