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ThyssenKrupp, a German industrial conglomerate with EUR38 billion (USD40.97 billion) in sales, is considering using credit derivatives to reduce its funding costs after a recent downgrade to junk status. "We are very interested in learning about [credit derivatives] in more detail and finding out what effect they can have on our funding costs," said Daniel Walk, a member of the finance strategy team in Dusseldorf. Standard & Poor's downgraded ThyssenKrupp two notches to BB plus on Feb. 21.

Workout and restructuring bankers, along with a few distressed investors and lawyers, found their inner child last week at Institutional Investors Seminars Turnaround Management & Corporate Restructuring Summit at the W New York. A fair few were caught playing with one of the handouts--magna-doodles from Sherwood Partners--during a session.

Thomas O'Connor, portfolio manager at the Montgomery group of Wells Capital Management, says he is considering shifting 10-15%, or approximately $57-86 million of the firm's $575 million short-term fund, out of mortgage-backed securities into agencies. A trigger for the move would be if the Federal Reserve eases to counter the economic slowdown or if Treasuries rally under a war with Iraq, he says. In those cases, lower interest rates would create a high pick-up in prepayments, leading mortgage products to underperform Treasuries, he says. He declined to define a level at which interest rates would be low enough to trigger such move. Another reason for the rotation is that the firm is overweight in mortgage products and has no allocation to agencies.

Edinburgh-based Standard Life Investments is looking for carry instead of making yield bets on the view that the European bond markets will continue to be volatile over the coming months. Gregor MacIntosh, investment director, responsible for E1 billion in European government debt, says he is certain an economic recovery is coming. However, he says the yield curve will not change shape dramatically until there is some sentiment that there is a floor for interest rates--at which point he may reconfigure the portfolio.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

Piedmont Capital Management Associates is looking to add some $15 million to corporate bonds in sectors such as utilities and Baby Bell telecommunications companies. Walter Campbell, portfolio manager of $150 million in taxable fixed income, says the move would be a bid to capture yield in areas of the market that have been beaten up relative to their historical performance and that of U.S. government securities. Piedmont would fund the purchases with cash from callable agencies when they are called. As a trigger for the trade, Campbell is waiting for a sell-off in corporate bonds. If spreads remain more or less unchanged, he will add only $7.5 million in corporates and put the rest back into callable agencies. Campbell says he prefers callable to non-callable agencies because they offer more yield.

March 2003

Andrew Constan, global head of equity derivatives at Salomon Smith Barney, is leaving the firm. "I am leaving on the best of terms," said Constan, adding that the decision was motivated by a desire to change his lifestyle. Constan said he has no immediate plans to join a competitor and has made no final decision regarding future plans. Joe Elmlinger, global head of sales and structuring in equity derivatives, will take over the head role. Elmlinger did not return calls left with his assistant. Duncan King, a spokesman at SSB in New York, declined comment.

By Tom Groenfeldt

ABN AMRO is structuring a synthetic securitization referenced to airplane leases, which it expects to price this quarter. John Mullen, head of global structured credit markets in London, said the deal is likely to be over USD1 billion and privately placed, but declined further comment.

BNP Paribas has hired Sunny Park, a researcher in the structured finance research team at Fitch Ratings, in a similar role for its credit research group in Hong Kong. Park, who starts this week, said she will collaborate with the ABS and CDO origination teams and report to Andrew Freris, chief economist and head of fixed income research in Hong Kong. Freris declined comment.