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Derivatives

Merrill Boosts Structured Credit For Corporate Finance

Merrill Lynch's structured credit products team has increased its focus on monetizing end users' assets by using asset swap technology. The firm is repackaging corporates' illiquid assets, which can include anything from cash flows to real estate, and then selling them off in an attempt to raise cash in a period when corporates are finding it hard to raise capital, according to Henry Schmeltzer, head of European structured credit products in London.

Merrill is using credit enhancements and asset-swap technology, including credit derivatives, to repackage and sell the assets that the corporate would otherwise have a hard time selling to investors. In a typical trade the corporate sells the assets to a special purpose vehicle, which repackages the risk, which may or may not be credit risk. The SPV would then issue notes to sell to investors. The notes pay either fixed or floating rates. "Investors are much more used to seeing that and therefore they are willing to pay more for it," Schmeltzer said, adding that the issuer would still retain the risk but would benefit from raising the cash.

Schmeltzer stressed the product line is only being offered to institutional investors. The repackaged deals can range in size from EUR10 million (USD9 million) to EUR1 billion. The difference between these and more traditional securitizations is these are based on one or a handful of assets, whereas common asset-backed deals are referenced to large pools.

"We're definitely pitching them and trying to get clients to take a look at this kind of asset restructuring," Schmeltzer added. He declined to quantify how much of an increase in volumes his five-person team has seen.

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