Markit Group Limited and Creditex Group Inc.,in partnership with 11 major credit derivative dealers, have successfully conducted a Credit Event auction to generate a cash settlement price for contracts referencing loans of Movie Gallery, Inc.
At 2.00pm EST, the final price for specific Movie Gallery loans was fixed at 91.5%. Creditex and Markit are the official administrators of the Credit Event Auctions.
Movie Gallery Inc., a US video store chain, failed to make a September 10, 2007 interest payment on its first lien loan. This triggered a “failure to pay” credit event on loan CDS contracts referencing the company.
The Credit Event auction enabled institutions to cash settle LCDS and LCDX index trades (or cash settle and exchange physical loans) at the final auction price.
During the Credit Event auction, dealers submitted orders electronically on the Creditex platform. The auction submissions were delivered to Markit electronically who calculated and verified the results, and then published them on the official website.
Movie Gallery Inc. is the first corporation for which a Credit Event auction has been held to settle LCDS and LCDX index trades. Previously, auctions have been held for Collins & Aikman, Delta Air Lines, Northwest Airlines, Delphi Corporation, Calpine Corporation, Dana Corporation and Dura.