JAL hit by report of $1 bln derivatives charge

By Nobuhiro Kubo and Yoshifumi Takemoto

TOKYO (Reuters) - Japan Airlines Corp may have to pay about 100 billion yen ($1.1 billion) to settle derivatives transactions, a newspaper said on Friday, sending the struggling carrier's shares down 3 percent to a record closing low.

JAL denied the report in the Yomiuri newspaper, which said it may have to settle 100 billion yen on hedging contracts against fluctuations in fuel prices, currencies and interest rates because it has requested a freezing of payments to creditors.

JAL applied for the debt moratorium earlier this month under a scheme called Alternative Dispute Resolution (ADR), aiming to gain some breathing room financially as it awaits a possible bailout from a state-backed turnaround fund.

The Yomiuri cited rules set by the International Swaps and Derivatives Association (ISDA), a trade organisation which determines whether such actions should be deemed a "credit event" and therefore require a settlement of derivatives contracts.

JAL spokesman Taro Namba said that it has already contacted counterparties on those contracts and believed it has their assurances it would not have to settle due to the ADR process.

"We have heard from experts that an application for ADR could immediately trigger a credit event," Namba said. "But we have also heard that a similar case (to ours) did not trigger a credit event in the past."

JAL held a meeting of creditors on Friday and gained approval for the debt payment moratorium under the ADR scheme. Creditors also decided that a bridge loan of 126 billion yen to be extended to the carrier would be given priority rights in the case of bankruptcy.

A previous task force appointed by the transport ministry to come up with a revival plan for JAL had estimated that the airline might have to pay about 102 billion yen to settle derivatives transactions, according to a final report obtained by Reuters.