Dixons Group is considering making its first foray into the credit derivatives market. Matthew Hurn, European treasurer in Hemel Hempstead, U.K., said the company is reviewing the possibility of buying credit-linked notes for its investment portfolio, which is domiciled in the Isle of Man. This so-called captive portfolio contains the premiums paid by retail consumers for guaranteed warranties on electronics products, according to a corporate treasurer at a U.K. company familiar with Dixons. Giles Newell, group treasurer, however, denied that the company is examining investing in CLNs and declined further comment.
The captive portfolio invests in floating-rate notes and repos, and Hurn said if it were to go ahead with the strategy, it would look to buy CLNs that are one to three years in maturity to match the tenor of its current investments. Credit structurers said a corporate could earn Euribor plus 40 basis points on a typical CLN.
Hurn said Dixons will go ahead with CLN purchases if it decides these instruments correspond to its investment objectives. It has not established a time frame for making a decision, he noted, declining all further comment.
Investment banks, including Deutsche Bank, JPMorgan and Merrill Lynch, recently have been pushing credit-linked notes to European corporates (DW, 10/21). Corporates have been looking for ways to increase returns on their short-term cash holdings, and increased liquidity in short-dated credit-default swaps has made structuring these products possible.
