Creditflux Newsletter

Loan credit default swap dealers have voted to hold a credit event settlement auction for UK construction company McCarthy & Stone, according to Markit. Privately-owned McCarthy & Stone, which is a constituent of series 2 of the LevX index and held in a number of European CLOs, is reported to have carried out a debt restructuring under a UK scheme of arrangement. According to media reports, its debt has been reduced from £800 million to £500 million and loan investors have received equity in the company.

The company, which builds retirement homes, was the subject of a leveraged buy-out in 2006. It has been hit hard by the recent collapse in demand for properties in the UK.

It is not clear whether the credit event has been triggered by the court-sanctioned debt restructuring or by a failure to pay under some of its debt obligations. Restructuring is not used as a credit event in loan-only credit default swaps: the only credit events are failure to pay and bankruptcy.

Schemes of arrangement are court-approved agreements between companies and their shareholders or creditors. They are used for a wide range of purposes, such as agreeing mergers and acquisitions and are not usually regarded as a form of bankruptcy.

McCarthy & Stone has been treated as a defaulted security by a number of CLOs since January. However, the definition of default used in CLOs is generally broader than in credit default swap contracts.