Since Creditex and IHS Markit began hosting credit event auctions in 2005, only 2009 brought more auctions than the covid sell-off has produced so far in 2020.

There is still a gulf in scale, with only 16 auctions completed or scheduled versus 45 in 2009. With European coronavirus cases on the rise again — and European credit defaults beginning to feature among the rising casualties — the coming months could add an array of defaults that are less signposted compared to those that have occurred so far.

Hema, the Dutch retailer, became in August the third European corporate borrower this year to necessitate a CDS auction after it triggered a failure-to-pay credit event. But of more concern to market participants is that it was the second to impact the Crossover index and its tranches, following UK retailer Matalan’s trigger earlier in the month.

In total the Emea Credit Derivatives Determinations Committee has ruled in favour of four credit events this year. But one was for CDS referencing Lebanon, while the other was for German digital payments firm Wirecard, a seldom-traded name in CDS that lies outside the index. The last credit event of an on-the-run Crossover constituent was Astaldi in November 2018.

The Hema and Matalan auctions, the dates of which are still to be determined at time of press, leave Crossover still at a far remove from US counterpart index CDX HY, which has registered nine defaults in its current series. That has wiped out value in the US index’s 0-15% equity tranches, which are based on series 33 of CDX HY. The tranches were hit by two previous constituent defaults before the coronavirus sell-off and March index roll.

Crossover five-year 0-10% equity tranches were quoted at 59 points by IHS Markit at time of press, in 4.75 points from 31 July against a near 50bp rally in S32 and S33 of the index, to 308bp and 326bp, respectively.

Hema’s trigger follows the company’s failure to make payments on its €600 million guaranteed senior secured floating rate notes due 2022. Hema five-year CDS is quoted at 34 points up front by IHS Markit, which posits a 66% real recovery rate on bonds.