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NEW YORK, Jan 15 (Reuters) - Changes made to Liz Claiborne Inc's bank credit agreements may allow some buyers of protection on the retailer's bonds to seek payments on the contracts, Bank of America said on Thursday.

However, illiquidity, or the lack of debt backing the credit default swap contracts, may complicate investors' ability to find the bonds they need to settle the swaps, Bank of America analyst Glen Taksler said in a report.

Liz Claiborne on Tuesday said it extended its revolving credit facility to 2011, though the size of the bank line was reduced to $600 million from $750 million and bank lenders increased their fees and the interest rate on the facility.

The changes made to the credit facility may classify as a restructuring under terms in the credit default swaps insuring the retailer's bonds, Taksler said.

Credit default swaps are used to insure against a borrower defaulting on their debt or to speculate on their credit quality.

Liz Claiborne's amendment can be seen as meeting a number of requirements needed to trigger CDS payments under the restructuring clause, Taksler noted.

This restructuring clause is only active in contracts specifically insuring the retailer's unsecured bonds and not in contracts based on indexes or insuring the company's loans.

The extension of the maturity of the facility to May 2011 from October 2009 and its smaller size meet some terms of the restructuring clause, while the loan facility also meets the requirement that at least four lenders are part of the facility, he added.

Liz Claiborne's lenders are JPMorgan (JPM.N), Bank of America (BAC.N), SunTrust Banks (STI.N) and Wachovia.

The restructuring clause also requires that the facility be at least partly drawn and that at least two-thirds of lenders agreed to the amended terms.

Liz Claiborne has drawn $234 million against the facility, and it is likely that most of the lenders agreed to the amendment because it went through, Bank of America said.

The restructuring clause also requires that the amendment results directly or indirectly from a deterioration in the creditworthiness or financial condition of the company.

Recent credit rating downgrades and a reduction in Liz Claiborne's projected adjusted earnings per share could meet this condition, Taksler said.

If a protection buyer seeks to be paid out on the contract due to the restructuring they can trigger the contract within around 30 days, though the lack of debt backing the contracts may make it complicated to settle, Taksler said.

If a protection buyer seeks to be paid out after a restructuring they are only able to settle the swaps with debt that has a similar maturity as the swap. If a protection seller triggers payments, debt of any maturity can be used.

For Liz Claiborne's CDS maturing in June 2013 and earlier there are essentially no bonds that can be used to if protection buyers seem payments on the contracts, Taksler said.

The retailers only outstanding bond, which is due in July 2013, may be used for CDS maturing in September 2013 or later though the bond is illiquid and may be expensive to obtain, he added.

Net volumes of around $951 million of credit default swaps are outstanding on Liz Claiborne's debt, according to data from the Depository Trust & Clearing Corp. (Reporting by Karen Brettell; editing by Gary Crosse)