The academic debate over whether Marconi has defaulted, potentially triggering hundreds of millions of dollars of credit-default swap protection, recently ran up against hard reality when Ace Guaranty Re, a major seller of credit protection, said it would not yet pay out on Marconi protection. Major credit derivatives houses unanimously agreed Marconi had triggered the bankruptcy credit event in default swaps--and their position is backed by a Linklaters opinion--and started sending out notices in October. But some sellers of credit protection disagree. Officials at Ace declined comment.
However, both buyers and sellers of credit protection think credit-default swaps on Marconi will likely be triggered at some stage, it is just a question of timing, according to traders. Some end users want to wait because after the telecom company's planned debt for equity swap the remaining debt will likely be trading nearer par, as the company will have far less debt. This means sellers of protection will have to make smaller payouts. Credit traders said end users also want to wait as credit protection may mature and the final sellers would not have to pay out at all. However, one investor discounted this, saying most Marconi default swaps were five-year contracts and would still be valid through next year.
