Sanitec’s default on loan repayments is set to provide the first big test for the European market for credit derivatives based on risky leveraged loans after bankers called for an auction to settle claims.

The private-equity owned Finnish bathroom products maker has missed two loan repayments after failing to win lender backing for a deferral while it struggles to push through a restructuring. The market for loan credit default swaps (LCDS) has only been established for about two years in Europe, much less than the bigger market for credit default swaps on unsecured bonds.