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INVESCO Japan, an asset manager with over USD7 billion in assets, is considering selling cash and synthetic collateralized debt obligations to Japanese investors for the first time before year end. The asset manager's first deal is likely to be a cash CDO referenced to its own portfolio of U.S. asset-backed securities and loans, however, it will also consider structuring a synthetic CDO if there is demand. "It all depends on if we can find a buyer for the equity tranche," said Narabu Koga, ceo in Tokyo.

JPMorgan is examining its risk trading systems to avoid potential mismatches created by pending changes in the International Swaps and Derivatives Association's 2002 equity derivatives definitions. Tim Hailes, senior equities lawyer at JPMorgan, said if the systems that are used to hedge trades do not exactly match the counterparty contracts there is the potential for firms to lose money on trades. "This represents a real risk," Hailes said, explaining that until the problem hits the bottom line, as in a trader loses money, then no one takes notice. "It is no good implementing piecemeal bits of the jigsaw. There is a sufficient number of changes for us to feel it's important [to look at this area]."

The International Swaps and Derivatives Association has circulated what it expects to be the penultimate draft of credit derivatives definitions, which include a narrow definition of qualified guarantees. Kimberly Summe, general counsel in New York, said ISDA members have until Oct. 28 to comment, after which it will circulate a fourth and final draft in November. Go to DW's Web site (www.derivativesweek.com) to read the definitions.

Japanese credit derivatives houses are likely to write their own definition of restructuring as a credit event--which would be the third such definition simultaneously in use by the industry--if a global consensus cannot be reached on whether restructuring bilateral loans counts as a credit event, according to bankers in Tokyo. Approximately 60% of corporate debt in Japan is in the form of loans, most of which are bilateral, whereas in the U.S. bonds outnumber corporate loans by a ratio of 4:1. The U.S. market standard definition, the so-called "modified restructuring" definition, excludes restructuring loans held by less than three parties as a credit event and a new standard European players are developing would also exclude bilateral loans.

ARAMARK Corp. a service provider that generates about USD8.5 billion in annual revenue by offering services including cafeteria food and school uniforms, is considering entering an interest rate swap to lower the fixed-rate proportion of its debt portfolio. The company may enter a swap to convert a USD300 million bond it sold this summer into a floating-rate liability, said John Benjamin, assistant treasurer in Philadelphia. He said ARAMARK has not entered a swap because rates have moved against it since the six-year deal was priced in August. "We're still thinking about it," he said. The company has used interest rate swaps before.

Risks in long-dated foreign exchange derivatives are driven by three factors: spot and the yield curves of the home and foreign currency. These products are in general quite complex and difficult to manage. This article uses typical power reverse dual currency (PRDC) swaps to illustrate the embedded FX optionality and the associated risks.

Lehman Brothers is bringing aboard Catherine Loh, a fixed income sales professional at Goldman Sachs in Singapore, as the general manager of its Singapore branch. Kirk Sweeney, head of Asia ex-Japan fixed income sales in Hong Kong, said Loh is a replacement for Tom Picard, who relocated to New York to take a role in the structured credit trading group. Loh will oversee fixed income and derivative sales and report directly to Sweeney.

Nucor Corp., a steel producer with some USD4 billion in annual revenue, is considering entering its first interest rate swap. Jim Frias, corporate controller in Charlotte, N.C., said he is contemplating entering a swap to take on a floating-rate liability and lower the ratio of fixed-rate debt on its balance sheet. Of the company's almost USD900 million in total debt, 67% is in fixed-rate obligations. "We have a big ratio of fixed right now and we think long-term variable rates will be a bit lower-cost," he said, declining to provide a target ratio.

The International Commercial Bank of China, headquartered in Taiwan, is looking to market credit-linked notes for the first time. The over-the-counter derivatives will be structured by international firms on behalf of the bank. "We're always looking to offer our clients new products," said Angela Chen, manager of the treasury department in Taipei. She continued that given the current low interest rate environment, ICBC is looking to offer credit-linked notes that offer an enhanced return. Chen predicted it would execute its first trade within six months, adding that it has to educate its customer base first.

John Lewis, a U.K.-based retailer, has entered an interest rate swap to convert a GPB100 million (USD155.54 million) bond offering into a synthetic floating-rate liability. Peter Ford, treasurer in London, said the company chose to enter the swap to rebalance its ratio of floating-to-fixed rate debt. The retailer targets a 50/50 mix and its floating rate portion had fallen below 50%. Ford declined to elaborate. This is the first time John Lewis has converted an entire bond deal into floating-rate debt, but that is just a reflection of the amount the company needed to convert to rebalance its fixed-to-floating ratio, Ford explained.

"It is no good implementing piecemeal bits of the jigsaw. There is a significant number of changes for us to feel it's important [to look at this area]."--Tim Hailes, senior equities lawyer at JPMorgan, on the examination of its risk trading systems to avoid potential mismatches by pending changes in the International Swaps and Derivatives Association's 2002 equity derivatives definitions. For complete story, click here.