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Iridium's bank debt traded up Tuesday on news that Motorola would have to pay J.P. Morgan $300 million to satisfy part of a loan made to Iridium. Dealers reported levels in the 45 range. Bear Stearns was reportedly involved, but that could not be confirmed with officials there. The total volume of trading was estimated to be small, roughly $10-15 million.

Lehman Brothers will launch today a $370 million exit financing for Regal Cinemas, after winning the financing deal through a competitive bid. Lehman was not part of the pre-petition lending group, said a banker. J.P. Morgan, Bank of Nova Scotia and Bank of America led this group, he added, though he was unaware whether these banks specifically bid for the exit financing business. Credit Suisse First Boston has already signed onto the deal, he noted.

Lehman Brothers will hold a bank meeting today for TSI Telecommunications Services backing the $800 million GTCR Golder Rauner cash bid at the Intercontinental Hotel in New York. Price talk on the $200 million six-year term loan "B" is LIBOR plus 4% said a banker, familiar with the deal. The $135 million pro rata deck consists of a $35 million revolver and a $100 million five-year term loan "A" with pricing expected in the LIBOR plus 3 1/2% range, depending on the rating agencies. Accompanying the bank debt is $245 million in high-yield notes. Relationship lenders of GTCR have been approached for the pro rata, he noted, but no banks have yet signed on.

Credit and interest-rate derivatives had a bumper year as investment and commercial banks couldn't get synthetic collateralized debt obligations out of the door quick enough and end users flooded back to the market to hedge interest-rate exposure on the back of eleven Federal Reserve rate cuts. In Europe, pension funds also joined the rush to hedge with interest-rate derivatives, driving up demand.

UnionBanCal, the San Francisco-based holding company for Union Bank of California, is considering entering an interest-rate swap to convert a fixed-interest rate USD200 million bond offering it brought to the market last month into a synthetic floating-rate liability, according to K. Hamahashi, treasurer. He added that the swap would likely be a plain-vanilla deal with a five-year maturity to match the bond offering. "We look at the swap market on a continuing basis. This is something we've been considering as part of the entire bond offering process," Hamahashi said.

Whether it was making a first foray into weather derivatives, launching a hedge fund, issuing catastrophe bonds, or setting up a fund-of-funds the alternative investment sector skyrocketed in 2001. With the equity market in the gutter firms and wealthy individual investors began exploring other avenues for capturing high returns. "Investors are coming up against a challenging market that's having a massive impact on their portfolio construction. We've seen a sustained period of shrinking equity premiums that's had a real impact on traditional asset allocation. We realize that high-quality alternative investments can improve portfolio returns, while at the same time reduce overall volatility," said Bill Santos, managing director of Montgomery Asset Management, a San Francisco-based investment firm with more than USD7 billion in assets.

Investment banks entering the weather derivatives market gave the nascent industry a seal of approval just before Enron, one of its pioneers, filed for bankruptcy. Among the firms to enter were Barclays Capital (DW, 1/15), Dresdner Kleinwort Wasserstein (DW, 5/7), Credit Suisse First Boston, Deutsche Bank (DW, 5/20) and Italy's IntesaBci (DW, 7/16).

Commonwealth Investment Management, the fund management arm of Commonwealth Bank of Australia, is preparing to trade credit derivatives for the first time. It will trade single-name credit-default swaps in about six weeks. "We're gearing up for this," said Tony Adams, senior portfolio manager in credit investment at Commonwealth Investment Management in Sydney. Adams continued that it will trade credit default swaps on global names, primarily selling protection, for its AUD1.1 billion (USD567 million) Commonwealth Diversified Credit Fund. The asset manager has AUD30 billion under management.

The U.S. credit derivatives market was impacted by two of 2001's most unsettling global market events. The first was the bankruptcy of energy-giant Enron, which was closely followed by the collapse of Argentina's government and the specter of devaluation.

The European credit derivatives market experienced its first investment-grade defaults, a potentially damaging regulatory challenge and a change in its legal backdrop during an active 2001.

In an otherwise quiet week fx traders in Singapore last week reported strong demand from hedge funds buying short-dated euro calls/yen puts, which boosted volatility. "A few funds are creating a big effect," said an options trader at a European house in the Lion City, noting that their actions were magnified by the thin post-holiday markets.

The U.S. equity derivatives market was particularly hard hit in 2001 as initial public offerings and mergers and acquisitions slowed to a trickle. The lack of business translated into about a 30% decline from 2000 in the average notional size of trades and forced firms to look toward cutting costs. With the decline also came a focus on high-net-worth investors who were looking to hedge losses from the fall in underlying stock prices through innovative products, such as Banc of America's PEACS product, which allows investors saddled by the restrictions of insider trading rules to capitalize on stock sales in a volatile market. PEACS gave investors, such as those who sit on the board of directors at corporations, a chance to lock in a price of their shares and avoid downswings in the market, said Christopher Innes, managing director and global head of equity financial product sales at BofA in New York.