Quirk in Europcar Credit Insurance Offers Lucrative Trade

An anomaly in credit insurance on Europcar Mobility Group could prove lucrative for some traders as the French rental-car firm seeks to restructure 1.3 billion euros ($1.5 billion) of debt, Bloomberg News reported. The cost of buying Europcar’s bonds and credit-default swaps in a combined trade has risen to 110% of the notes’ face value, indicating that traders expect they’ll get more than par if the insurance pays out, according to Jochen Felsenheimer, who trades both markets as managing director at XAIA Investment GmbH. He doesn’t have a position in Europcar. Swaps typically pay 100% of face value in a successful settlement, and investors are betting a payout on Europcar would be higher than normal because of an unusual feature -- the contracts reference a loan, as well as the company’s bonds. Read more

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