US$3.5b credit default swaps cancelled in bailout


  • Business
  • Wednesday, 30 Jul 2008

NEW YORK: Merrill Lynch & Co Inc agreed to help bail out bond insurer Security Capital Assurance Ltd by cancelling US$3.5bil in credit default swaps and ending litigation.

Under the pact, Security Capital will be released from the derivatives guarantees it sold to Merrill. In return it will make a US$500mil payment to the investment bank.

The agreement is part of a series of moves by the third biggest US investment bank to reduce risk.

As part of the bailout, brokered by New York Insurance Superintendent Eric Dinallo, Bermuda-based reinsurer XL Capital Ltd will pay US$1.78bil in cash and issue 8 million shares to former subsidiary Security Capital.

XL said it would sell US$2.5bil of securities to help fund the agreement, which it said would eliminate more than 98% of its exposure to Security Capital. – Reuters

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