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Derivatives

CSFB Preps Synthetic Loans Index

Credit Suisse First Boston is working on what is thought to be the first synthetic index of leveraged loans constructed as a credit derivative. The existence of an index will boost liquidity on default swaps referencing secured debt. Leveraged loans is a growing area of fixed income, but is not well developed as a reference entity for credit derivatives. As liquidity in the credit derivatives arena develops it is a natural extension to apply this technique to the secured debt market. David Carlson, global head of developed markets credit derivatives in New York, said the index is an extension of its research capabilities and is designed to boost liquidity and transparency in credit derivatives on leveraged loans. He declined to elaborate on its structure.

The index, dubbed Select Aggregate Market Index "SAMI" (Secured), will reference a basket of 50-60 of the most liquid U.S. loans, according to an investor who has seen the marketing material. CSFB is pitching the index to fixed income accounts, money managers, banks, hedge funds and collateralized loan obligation managers.

Hedge funds executing relative-value trades against the index are likely to be among the first clients, noted an official. Loan fund managers hedging their exposures or using it as an outright investment tool are also likely clients, added one buy-side official.

The firm is also hoping rival dealers will trade the index and has put a user-friendly licensing agreement in place, said the official. Indices always work to encourage liquidity, which can only be a good thing, noted an official at a rival dealer. He added that his firm is likely to trade the index.

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