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Primus tears up $1.3 billion of CDS
Monday, October 5, 2009
Primus says that a counterparty facing its Primus Financial credit derivative product company has terminated $1.3 billion notional of credit default swap in which it had bought protection from Primus. Primus says that the $6.5 million it paid to the counterparty was a significant discount to the market value of the portfolio. The transaction reduces the total size of Primus Financial’s credit derivative portfolio which at the end of the second quarter stood at $16.3 billion in notional terms.
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Structured
Issuers
CFlux secondary
CLO index levels:
| Index | 21 May |
|
| CFlux USD AAA | ↑ | 96.2 |
| CFlux USD AA | ↑ |
88.3 |
| CFlux USD A | ↓ | 84.1 |
| CFlux USD BBB | ↓ | 75.3 |
| CFlux USD BB | ↓ |
74.1 |
| CFlux USD EQ | ↑ | 77.5 |
Well the reality is that Primus cannot take a hit of $1.3 billion if the CDS is called upon and never could, so it is all really simply a regulatory capital arbitrage issue for counterparties. It is not that different from dealing with a monoline
Not very inspiring if counterparties are willing to take big haircuts to get out of trades with you.