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Derivatives

UBS Restructures Bond

UBS Warburg has repackaged a U.S. dollar bond into a Singapore dollar-denominated bond through a special purpose vehicle for the first time. The firm executed the transaction to give Singapore-based investors, who could not use derivatives or did not want to tie up derivatives lines, access to the OCBC Bank bond. "This is the first deal of this type we've done in Singapore," said Michael Pieri, director of local currency fixed income trading in Singapore. While UBS has executed similar transactions in U.S. dollar instruments, it has not entered this type of deal in Singapore before because the market is relatively new. He added that it has had the capability to pull the trigger on similar transactions for several months but investors could not agree on which bond to swap. Other candidates included Ford Motor Credit's global offerings, but some investors did not want exposure to the auto sector.

The firm converted OCBC Bank's U.S. dollar-denominated 2011 bonds through a Cayman Islands-based spv, dubbed SPARC II, to create a SGD100 million (USD55 million) synthetic bond. In the cross-currency interest-rate swap UBS pays Singapore dollars fixed at 5% to the spv and receives U.S. dollars fixed at 7.75%.

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