Westdeutsche Landesbank has started focusing its credit derivative efforts in Tokyo on structuring large-sized credit-linked loans in Japan averaging around USD50-100 million per transaction. "We're developing an investment base," noted Hiroshi Fukuzawa, head of credit derivatives in Tokyo. He continued that the firm, which sold its first credit-linked loan structure last year, has seen growing interest and has begun pushing the structure. WestLB will look to sell 5-10 credit-linked loans by year-end. "It's my hope," said Fukuzawa.
In the structure, an investor enters a loan agreement with the issuing bank and sells credit protection to gain exposure on the names. For the investor, the exposure of the loan is referenced to the underlying credit rather than the issuing bank. The cash flows from the short credit position are used as interest payments for the loan, noted Fukuzawa. Interest for the products has been shown by insurance companies and domestic banks whose mandates may not include traditional credit instruments such as credit-linked notes. WestLB will look to sell protection in the interbank market to hedge its position.
Most of the potential end-users will likely aim for five-year yen-denominated instruments linked to a basket of around 10 names rather than to a single credit, said Fukuzawa.
