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Derivatives

Depositary Receipt Program Pays Off Bulgarian Brady Bonds

Investors in a depositary receipt program sponsored by New York-based firm International Asset Transactions (IAT), which specializes in the securitization and trading of illiquid securities, received early returns after the Bulgarian Ministry of Finance bought back outstanding Brady bonds.

Investors in a depositary receipt program sponsored by New York-based firm International Asset Transactions (IAT), which specializes in the securitization and trading of illiquid securities, received early returns after the Bulgarian Ministry of Finance bought back outstanding Brady bonds.

Gus Udo, president and ceo in New York, explained that the program allows Bulgarian bonds to be deposited and then divided into principal-only and interest-only strips. When Bulgaria called over USD600 million in debt late last month IAT's depositary receipt program had USD54 million outstanding, which was paid back to investors, he said.

While the Bulgarian program, which is rated AAA by Moody's Investors Service, offers a similar risk/reward profile to that of U.S. Treasuries, Udo noted that returns on both the principal and interest-only strips in the program outperformed U.S. Government bonds. For example, holders of principal strips in the Bulgarian depositary receipt program, and who entered the program at launch in 1997, yielded over 200 basis points in excess of the returns of U.S. Treasury principal strips. Coupon strips in the program also returned above Treasuries. IAT sponsors similar programs on Brazilian, Venezuelan, Mexican and Nigerian bonds, he said

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