Trading in Ardagh bond plus CDS basis packages reflects growing uncertainty about whether derivative contracts referencing the Irish packaging firm could be rendered worthless, according to 9fin sources.

This comes as Ardagh appears to be edging closer to a deal that would hand control of the business to its senior unsecured noteholders (SUNs).

Market participants are grappling with a high-stakes technical question — will there be any Ardagh Glass (ARGID) SUNs left to deliver into the Ardargh Packaging Finance (Ardapac) CDS?

Dealers, buysiders and lawyers 9fin spoke to largely agree CDS should deliver a pay out to protection buyers at some point, but secondary trading levels reveal the market is less and less convinced of that outcome.

“There appears to exist a narrow but theoretical method that the SUNs could be fully equitised, leading to no SUNs being able to be delivered into CDS contracts,” said one buysider. “In such a scenario, only SSNs would be deliverable, and the recovery would be extremely high — this is what the market is wary of.”

According to 9fin reporting, the most likely looking deal under discussion would involve $1.4bn in new money to pay off Apollo’s rescue facility and shareholders, as well as provide liquidity, while reinstating the secured debt at group level and converting SUNs into equity — effectively handing over ownership of Ardagh Group (AGSA) to the SUN holders.

Earlier, more fragmented proposals that kept the metals business in a separate HoldCo to the glass business were rejected, and pricing remains a sticking point.