High recovery rates and derivatives accounting changes have contributed to the dramatic growth of new investors and liquidity in the credit derivatives market.
Recently defaulted Dana Corp. recovered at 75% in March and Delphi Corp. at 63.375% last fall, boosting investor confidence in the credit-default swap settlement process and attracting traditionally risk-averse investors, said Michael Mutti, senior managing director and global head of structuring and marketing.
The Financial Accounting Standards Board's resolution of accounting inconsistencies between cash and synthetic CDOs has further added to investor comfort and involvement with the products. "[FAS 155] will unequivocally lead to a broad change in the investor base," said David Carlson, senior managing director and global head of credit derivatives structuring and marketing. As a result, Carlson added, "The market has moved fully into the mainstream of the global credit markets, delivering powerful tools to investors.... The market is poised for greater scale and growth."
