Well, nearly worthless. Ben Cole notices this week's auction to settle credit derivatives contracts written on bonds and loans of Tribune Co. Basically, investors sold insurance protection in the event of a debt default. The bondholders who bought into these swaps receive a certain percentage of the face value of the bonds that are guaranteed. How much? In Tribune’s case, those selling protection will have to fork over $98.50 for every $100 of face value. Put another way, Tribune bonds have a face value of 1.5 percent. Yowser! From David Gaffen at Marketbeat:

Standard and Poor’s, a ratings agency, had already suggested that recovery values would be “negligible” for the bonds, at between zero and 10% for secured notes and debentures, senior unsecured debt, and subordinated debt. The auction result for Tribune loan credit default swaps, or LCDS, was only slightly better, setting a price of 23.75% of face value for the firm’s loans. Still, that number was below the 30% to 50% recovery value estimated by Standard and Poor’s in its report in December.

As we know by now, credit default swaps, which are really just a sophisticated version of gambling, have made the financial crisis a whole lot worse. They nearly decimated AIG, whose executives had stupidly relied on them not to explode in their faces. Which of course they did.