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European and U.S. credit derivatives documentation is converging--but the restructuring credit event remains the key unresolved issue, according to Chris Francis, managing director and head of international credit research at Merrill Lynch in London.

The cost of five-year credit protection on Michigan utility CMS Energy doubled last week as the company's USD450 million bank facility was set to expire. Five-year protection blew out to 1,100-1,350 basis points Wednesday, from 550-650bps earlier in the week, with demand for protection coming from the hedge fund community. The default-swap curve also inverted, with mid-market one and a half-year protection at 1,300bps, indicating short-term concern for the company. It is in the process of restating earnings from 2000 and 2001 to eliminate revenue generated from so-called round-trip trades, which occur when a company buys and sells electricity at the same price to artificially inflate trading volumes. "That's inflated their revenues by something like USD4 billion. It's an investor confidence issue," said one trader. But he added that among utilities, CMS does not rely on trading revenues as much as other names such as Dynegy.

Deutsche Bank has hired Munir Dauhajre, managing director and head of liquidity sales at Merrill Lynch in New York, as a managing director in charge of cross-rates fixed-income sales in New York, filling a role that has been vacant since the departure of Mal Brooks earlier this year, according to an official at Deutsche Bank. Dauhajre, who started at Deutsche Bank earlier this month, is now head of interest-rate derivatives, government and agency debt sales to other banks, hedge funds and insurance companies. He reports to Brian Reid, national fixed-income sales manager in New York. Dauhajre, who held a similar role at Merrill, referred queries to Reid, who did not return calls.

European investment houses, such as UBS Warburg and Dresdner Kleinwort Wasserstein, are reportedly looking at structuring the first collateralized debt obligation referenced to portfolios of debentures, according to officials familiar with the transactions. Debentures are the U.K.'s precursor to asset-backed securities, with the major difference being the assets remain on the balance sheet of the issuer giving the investor a senior claim in the case of bankruptcy. These deals are expected to be around GBP1 billion (USD1.47 billion). One official said the deals are being prompted by client demand to remove these assets from their balance sheets. Officials at UBS declined comment.

ICAP is in the process of launching a foreign exchange forward electronic brokering platform internally and may roll it out as a view-only platform via the Internet. Donald McLumpha, director, London/Europe of the electronic broking division, said ICAP is in the process of testing the platform and expects to start using it in about three months.

Conectiv, a U.S. energy provider that serves four Mid-Atlantic states, is planning to enter its debut interest-rate swap to satisfy creditors as part of a USD365 million bank facility it is in the process of arranging, said Phil Reese, treasurer in Wilmington, Del. In the swap, Conectiv will look to convert half of a proposed USD365 million floating-rate bank facility into a fixed-rate obligation. Reese declined to provide further details of the bank facility.

Singapore-based UOB Kay Hian Advisors, with USD80 million under management, is considering using asset swaps for the first time to strip out the equity component on convertibles, according to Mary Koh, fund manager in the Lion City. The relative value fund manager is considering the move because the growing number of convertible bond issues in Asia this year is presenting opportunities. A number of funds in the region, including Wharton Investment Management in Hong Kong, have been looking to step up their convertible arbitrage activity this year (DW, 3/17).

Goldman Sachs has hired Lyndsay Lobue, credit sales official at JPMorgan in New York, as part of its credit derivatives group, covering bank clients. She will report to Eric Oberg, managing director and head of credit derivatives sales and marketing for North America. Lobue previously reported to Maleyne Syracuse, managing director and head of structured credit sales at JPMorgan, said Syracuse, who declined further comment. A Goldman spokesman declined comment.

A series of interest rate cuts over recent months has sparked interest in Indonesia's budding onshore interest-rate derivatives market and some market officials in Jakarta believe this could result in the market doubling by year-end.

New Zealand's Guardian Trust Fund Management, with over NZD1 billion (USD569 million) in its domestic fixed-income portfolio, is considering purchasing and selling credit-default swaps for the first time in the coming months. "If this can enhance our returns, we'll be happy to go down that road," said Fergus McDonald, head of bonds and currency in Auckland. He continued that the fund is studying the instruments as an additional investment tool for its fixed-income portfolio and that if it goes ahead with establishing systems and preparing documentation, it could be trading within six to 12 months.

AXA Investment Managers, which manages roughly £16 billion in fixed-income assets, has been, and will continue to accumulate shorter-dated triple-B rated paper, mostly from the primary market. Denis Gould, head of the sterling investment-grade team, says he is especially interested in seeing new issuance fromNetwork Rail, the not-for-profit company established by the British government to replace Railtrack, which was put into receivership last year. Network Rail is expected to issue debt to pay off existing Railtrack debt and to fund project work. Gould is also anticipating long-dated issuance from LCR, the company that runs the channel link tunnel.