Creditors of Japan Airlines Corp have rejected the struggling carrier's restructuring plan and are pushing for a cut in debt waivers and details of the use of state funds, a source familiar with the matter said.

Shares in Asia's biggest airline by revenue jumped nearly 12 percent on Monday after losing more than a quarter of their value last week, as investors reckoned the fall was overdone.

JAL's benchmark spreads in the credit derivatives market were at extreme levels, suggesting market players were bracing for a debt restructuring that could be deemed a credit event -- leading to a payout on the insurance-type contracts offering protection against such restructurings.

The airline, under the supervision of a government-appointed task force, has asked banks for 300 billion yen ($3.3 billion) in debt waivers and debt-for-equity swaps, sources familiar with the matter told Reuters last week.

Creditors rejected that plan on Sunday and requested a new one with less debt forgiveness as well as clarity on how the airline will cut pension obligations and how much the state will provide in capital and loans, a source with knowledge of the meeting said.

The source spoke on condition of anonymity because the plan has not been made public.

A JAL spokesman declined to comment on whether its creditors had rejected the plan.

JAL shares ended up 11.9 percent at 113 yen, while the Nikkei average <.N225> eased 0.2 percent. More than 118 million JAL shares changed hands, 11 times the daily average this year.

Investors are just buying back the stock after it was oversold last week, said Takahiko Kishi, an analyst covering JAL at Mizuho Investors Securities.

JAL is headed for its second straight annual loss, weighed down by $15 billion in debt and a bloated cost base that makes it less efficient than rival All Nippon Airways Co <9202.T>.

JAL's largest creditor is the state-owned Development Bank of Japan with 230 billion yen in loans outstanding as of March 31.

Other lenders include a unit of Mitsubishi UFJ Financial Group <8306.T>, with 57 billion yen in loans, a unit of Mizuho Financial Group <8411.T>, with 53 billion yen, and a unit of Sumitomo Mitsui Financial <8316.T>, with 37 billion yen.

CREDIT CONCERNS

JAL has been restructuring under state supervision since it received a 100 billion yen government-guaranteed loan in June.

It put forward a plan last month that included axing 6,800 jobs and 50 routes and a 30 percent cut in operating costs, but was forced back to the drawing board after the government said the steps were not enough.

The latest plan, which would increase the job cuts to around 10,000, has not satisfied creditors who feel they are being asked to carry too much of the burden while the plan does not clearly address the state's plans for injecting public funds.

It also fails to offer a viable plan for reducing pension payouts to retirees, the source said. Creditors expect a revised turnaround plan as early as this week, the source said.

JAL has already factored in a one-off gain of 88 billion yen this year from cutting pension payments even though it has not found a way to win the support of retirees, who oppose the move.

There really isn't a lot of clarity on JAL over the longer term, said Okasan Securities strategist Noritsugu Hirakawa.

The Yomiuri newspaper reported on Monday that the government was considering various methods to inject funds into JAL, including offering guarantees on loans and tapping a newly created state-backed corporate turnaround body.

JAL's 5-year credit default swaps are quoted at about 2,000 basis points, compared with 123 basis points on the 5-year iTraxx Japan index series 12.

The relatively high level suggests traders see a risk the restructuring could result in a credit event, which would trigger a payout on credit default swap contracts purchased by investors to insure against corporate failure.

Last week, ratings agency Standard & Poor's cut its long-term corporate credit rating on JAL by two notches to B- from B+ and warned it could lower it to SD or selective default if creditors exchange debt for equity or forgive debt.

($1=90.87 Yen)

(Additional reporting by Nathan Layne, Elaine Lies, Aiko Hayashi and Mariko Katsumura, Editing by Ian Geoghegan)

Nikkei 225 Japan Airlines