NEW YORK, Oct 9 (Reuters) - Credit default swaps on XL Capital Ltd XL.N began trading on an upfront basis on Thursday, and its stock price plunged more than 37 percent.
The cost to insure XL’s debt rose to around 12.5 percent the sum insured as an upfront sum, or $1.25 million to insure $10 million in debt for five years, in addition to annual premiums of 5 percent, according to Phoenix Partners Group.
Swaps trade on an upfront basis when a company is considered distressed.
The swaps had opened at a spread of around 750 basis points, or $750,00 per year for five years to insure $10 million in debt, according to Phoenix. (Reporting by Karen Brettell; Editing by James Dalgleish)