Marathon Discusses CDS Succession Event

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Marathon Oil, the Texas-based oil company that spun-off its downstream operations earlier this year, has a submitted a request to the International Swaps and Derivatives Association regarding a possible succession event in the credit default swap (CDS) market after the spin-off.

Marathon (MRO) stopped backing $3 billion in debt issued by Marathon Petroleum, the newly created unit. That may have triggered a so-called succession event. Succession events can affect credit default swap contracts if, for example, the borrowings of one company become the obligations of another under a restructuring, merger or spin-off, according to the Wall Street Journal.

Long-term debt at Marathon Oil was $4.68 billion as of June 30, down from $7.6 billion on December 31, 2010, the Journal reported. The Depository Trust & Clearing Corp. says there are $341.5 million in Marathon CDS currently outstanding.

The ISDA's Determination Committee could rule that a succession event has occurred and that would simply mean holders of those CDS contracts will reference a different issuer, the Journal noted. In this case, that would be Marathon Petroleum (MPC).