Wirecard debt hedges set to pay out US$212m to funds

[LONDON] Hedge funds that bought credit insurance on Wirecard debt are among those in line for a windfall of as much as US$212 million after the disgraced German payments company filed for insolvency last week.

A committee of traders ruled late on Tuesday that Wirecard has gone through a so-called bankruptcy credit event, triggering payouts to holders of credit-default swaps. These contracts are commonly used by hedge funds to make bets on a company running into trouble as well as by bond investors to hedge their exposure.

Wirecard filed for court protection in Munich on June 25 after disclosing more than US$2 billion was missing from its balance sheet. The scandal led to the arrest of former chief executive officer Markus Braun and inflicted severe damage to the reputation of Germany's financial sector. The country's deputy finance minister has pledged a quick overhaul of regulatory oversight.

Wirecard's credit derivatives reference its 500 million-euro (S$782.9 million) bond due 2024 which is now in default and quoted at about 20 US cents on the euro, according to data compiled by Bloomberg.

The decision is binding on swaps governed by 2014 definitions and the panel will meet again to decide whether an auction should be held to settle the contracts, the Credit Derivatives Determinations Committee said in a statement on its website.

BLOOMBERG