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Derivatives

M&A Pick Up May Encourage Credit Hedges, Says JPMorgan

An expected uptick in mergers and acquisition may encourage corporates undergoing such transitions to hedge their exposures with credit derivatives.

An expected uptick in mergers and acquisition may encourage corporates undergoing such transitions to hedge their exposures with credit derivatives. Andrew Palmer, managing director and co-head of global structured credit marketing distribution at JPMorgan in New York, noted that liquidity in credit derivatives has greatly improved over the past few years while M&A activity has seen a lull. As M&A looks set to stage a come back end-users may now be more likely to use the instruments, he said.

Andy Brindle, global head of credit derivatives management, noted that one example in which credit derivatives could be used would be if a U.S.-based corporate bought a European firm that holds a lot of debt on its balance sheet. Credit derivatives could be used to hedge the debt exposure. Most corporates already use interest-rate and foreign exchange derivatives during mergers and acquisitions.

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