Massive Credit Default Swap (CDS) Payments Come Due

Trouble Ahead:
Massive Credit Default Swap Payments Come Due
Historic auctions next week will result in billions of dollars in liabilities

Last update: 1:39 p.m. EDT Oct. 5, 2008
WASHINGTON, Oct 05, 2008 /PRNewswire via COMTEX/ --


WHAT: Holders of credit default swaps -- the financial vehicles with a
worldwide face value estimated in excess of $50 trillion -- are
bracing themselves for the fallout from the Lehman Brothers
bankruptcy and the takeover of Freddie Mac and Fannie Mae by the
United States government. Three auctions to be held next week will
determine the amount of settlement payments required to be made
under credit default swaps with Fannie Mae, Freddie Mac, and Lehman
Brothers as the reference entity.

These auctions will be used to set values to be paid under thousands
of agreements and are scheduled to take place on:

Freddie Mac October 6, 2008
Fannie Mae October 6, 2008
Lehman Brothers October 10, 2008 (TBC)

WHY: After these auctions, credit protection sellers are expected to be
called upon to make payments that, in the aggregate, are
extraordinary for the credit default swap market. Some estimate that
the payments on Lehman's bonds alone will be $350 billion.
WHO: Given the unusual volume of these payments and the current
difficulties in worldwide financial markets, the credit default swap
payments may lead to stresses on vulnerable counterparties and to
disputes over payments.