Search results for

"We are trying to point out which are the boring companies in the middle."--Chris Francis, head of international credit research at Merrill Lynch, speaking about its new first-to-default baskets, which are designed to have less volatility. For complete story, click here.

United Utilities has entered an interest rate swap to convert a GBP150 million (USD234.34 million) bond offering into a synthetic floating-rate security. Tom Fallon, treasurer at United Utilities in Warrington, U.K., said 95% of its income is generated from regulated monopolies--and is therefore indexed to inflation--so floating-rate liabilities are better matched to its revenue streams. The company is receiving the coupon on the bond in the swap, which is 5.25%, but Fallon would not disclose what United Utilities is paying in the transaction. He would also not disclose the counterparty on the swap. JPMorgan was the bond underwriter.

Portman Building Society, the fourth largest thrift in the U.K. with assets of nearly GBP10 billion (USD15.6 billion), is considering using credit derivatives for the first time. David Stunell, group treasurer in Bournemouth, U.K., said credit derivatives protection is an attractive option in light of deteriorating credit quality in its investment portfolio, which includes government and corporate bonds. In line with many of the U.K.'s largest thrifts, Portman marks its investments to market and therefore sees credit derivatives as a means for hedging out volatility in its earnings statement from unrealized losses.

Representatives of the U.S. credit derivatives market voted against implementing a restructuring definition proposed by European credit professionals by a majority of around 2:1 at last week's International Swaps and Derivatives Association meeting, according to bankers who attended the meeting. The vote, albeit informal and unbinding, is a major setback for efforts to establish a global restructuring definition. The meeting, which was attended by about 60 credit derivatives professionals, was held via video conference at Goldman Sachs' New York and London offices. Only about 20 of the attendees voted on the question of whether the U.S. market should adopt the Aug. 27 definition, also known as "modified-modified restructuring."

The cost of U.S. dollar/yen options slid into single digits last week after spot steadied at a fraction under JPY125. One-month implied volatility fell to 9.6% Thursday, down from 10.5% the week before. The yen hit a peak of JPY125.05 Wednesday, which was a significant level as there was a build up of options with strikes at this level, noted one trader in New York. The spot rate's immediate reversal to JPY124.25 caused implied volatility to fall, however, traders are bullish on the dollar strengthening and expect one-month vol to jump back into double figures in the short term.

The World Bank Group has entered a cross-currency interest-rate swap to convert a ZAR150 million (USD14.3 million) fixed rate bond into a euro-denominated synthetic floater. Hynd Bouhia, senior financial officer in Washington, said the bank pays a LIBOR-based floating liability in return for the 12.5% coupon on the bond. The swap mirrors the bond's two-year and three-month maturity.

Credit Agricole Indosuez Asset Management will reduce its exposure to U.S. Treasuries by 10% of its global fixed-income portfolio if there are indications the U.S. economy is emerging from its doldrums. Bruno Crastes, head of global fixed income at CAI in London, says, "We think the bond market is now in a bubble and a lot a cash has moved to U.S. as protection against risk." He says a trigger for the move could be the war in Iraq or some other kind of geopolitical event. Crastes has already reduced U.S. Treasury holdings from 30% of the E6.5 billion global fixed-income portfolio, to 20%, because he believes Treasuries have become too expensive. CAI has positions at the very short and very long ends of the curve, and those are the positions Crastes has been selling.

If this year's Loan Syndications and Trading Association conference is anything like last year's, there will be deep discussions on settlement, arguments on assignment fees and ... traders dancing at the podium.

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.

Westwood Management Corp. will move about 10% of its portfolio out of Treasuries and into corporate bonds between now and the end of the year in a bid to increase yield at a time when corporate spreads are close to historically wide levels. Mark Freeman, portfolio manager of $850 million, says the firm will also reallocate its Treasury portfolio by selling two- to 10-year Treasury notes and buying longer and shorter dated paper to prepare for a flattening of the Treasury yield curve.

Pat Moon, portfolio manager at Meridian Investment Managers, says he will swap 10% of the firm's portfolio, or $10 million, from Treasuries to investment-grade corporates, as corporates spreads are bound to tighten with the economic recovery. Moon reasons that some corporate names have seen their spreads over comparable Treasuries widen more than what is justified by their fundamentals, simply because "we are in a very unusual environment" characterized by corporate scandals and geopolitical tensions. He says that a year from now, providing economic conditions remain stable, corporate spreads could tighten by 100 basis points and the 10-year Treasury yield, rise to 4.50-5%.

Robert Hoffman has left Morgan Stanley where he was the firm's senior asset-backed securities banker specializing in rate reduction bond deals, according to an individual at the firm. Hoffman reported to Gail McDonnell, managing director and head of ABS finance. McDonnell did not return repeated calls seeking comment on the bank's plans to replace Hoffman or the reason for Hoffman's departure. Hoffman could not be reached for comment. A banker at Morgan Stanley says that Jack Kattan, v.p., also an ABS banker in McDonnell's group, would be filling in for Hoffman, but it remains unclear whether he would do so on a permanent or temporary basis. An ABS analyst outside the firm confirmed that Kattan is the de facto banker in charge of rate reduction transactions for the firm. Kattan declined to comment.