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Credit derivatives professionals expect new issues of synthetic collateralized debt obligations referenced to asset-backed securities to skyrocket this year with several firms, including BNP Paribas and Banc of America Securities planning their first deals in the U.S. Yuri Yoshizawa, v.p. and senior credit officer at Moody's Investors Service in New York, said it is getting enquiries from almost every CDO house as credit arbitrage opportunities in the investment-grade arena shrink. Last year Moody's rated three synthetic ABS deals compared with 45 cash deals, and based on enquiries seen so far this year Yoshizawa predicts that proportion will dramatically increase. One official estimated about a quarter of ABS CDOs this year will be synthetic. Robert Smith, v.p. at ACE Guaranty in New York, said it would consider participating in such deals, noting that as a new type of risk ABS offers diversification.

"We are very interested in learning about [credit derivatives] in more detail and finding out what effect they can have on our funding costs."--Daniel Walk, a member of the finance strategy team at ThyssenKrupp in Dusseldorf, commenting on the company's plans to look at ways of reducing its funding costs. For complete story, click here.

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.

Ares Management, the Los Angeles based asset management shop associated with Apollo Advisors, is in the market with a new collateralized loan obligation and is also in the process of raising a distressed debt and growth private equity fund in the region of $750 million to $1 billion. Ares is raising the debt for its fifth CLO, called Ares VII, according to a portfolio manager familiar with the CDO market. The shop has nearly $3 billion in assets under management, including more than $1.2 billion in bank loan assets.

Deutsche Bank,Citibank and Morgan Stanley pitched Moore Corp.'s $850 million acquisition facility to investors last week with a $500 million "B" loan priced at LIBOR plus 23/ 4%. The deal backs Moore's $1.3 billion merger with Wallace Computer Services to form one of the world's largest providers of print management services.

Bank of America shifted the tranche sizes and juiced up pricing and security for its $350 million facility for Central Parking. The seven-year "B" piece is now set at $175 million with a spread of 523 basis points over LIBOR with a 25 basis point upfront fee, according to a banker. The "B" was formerly $150 million and priced at LIBOR plus 31/ 4%. The five-year revolver is now $175 million with an unchanged LIBOR plus 21/ 4% rate. The revolver was previously $200 million. Additionally, the deal is secured by collateral now, rather than stock secured with a springing lien as it was originally. A B of A official declined to comment.