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Following a quiet 2005, there are indications that some much needed diversification is starting to feed its way into Luxembourg's market for Lettres de Gage, both in terms of product structure and issuer type.

The proliferation since late 2003 of privately underwritten equity and equity-linked investments in public companies has taken place in an environment in which there are no pre-emptive rights for shareholders over the issuance of new equity. The deals therefore take place under Japan's third party allotment rules, condoned in law, by the government regulators and by the stock exchanges. Despite a recent court decision indicating that issuers must be careful that they are not disadvantaging incumbent shareholders, the prevailing wind seems still to be blowing strongly in favour of these instruments.

While George Bush racks up a federal budget deficit of $423bn in 2006, his counterpart in Mexico, Vicente Fox, is likely to end this year with a balanced budget. Danielle Robinson looks how Mexico has brought its finances under control and what it plans to do next with its local debt strategy.

The ¥126bn convertible bond arranged by JP Morgan for the then ailing Mitsubishi Motors Corp in the summer of 2004 has done some harm to the reputation of the moving strike convertible bond market, as it led to a catastrophic fall in the company's share price.

In late November 2005 FinTech Global, a structured finance boutique, entered an agreement with Nikko Citigroup to raise ¥18.5bn through a private moving strike convertible bond (MSCB).

AHBR's rapid fall from grace last October threatened, briefly, to take the shine off Gemany's new Pfandbrief Law that had only recently been introduced. But while some questions still remain such as what would happen in the Pfandbrief market if an issuing bank were to collapse, prospects for Germany's Pfandbrief market have rarely been brighter. Consolidation of issuers has begun, the product is being pushed harder and further than ever before and new distribution techniques are emerging. Philip Moore reports.

The ¥223bn management buy-out of fashion retailer World Co Ltd in September 2005 — Japan's largest ever — challenged the accepted wisdom on how MBOs should be financed. In a typical management buy-out (MBO) private equity funds take control of the majority of the equity.

In the world of Japanese private convertible bonds, investment banks are constantly looking for ways to innovate, to give clients precisely the product that suits their needs.

Given ABN Amro's enthusiasm for covered bonds as a lead manager and the prototype structured covered bonds issued by its Bouwfonds Nederlandse Gemeenten subsidiary, it was a question of when rather than if the parent bank would itself launch its first covered bond.

When Nippon Sheet Glass convinced the board of UK glass maker Pilkington to agree its £2.2bn takeover bid, a key factor was certainty of financing. And the centrepiece of NSG's funding package for the deal was Japan's largest ever moving strike convertible bond. The ¥110bn transaction gave NSG three key advantages: flexibility, certainty and cost. It is debatable whether any other financing technique would have served it as well.

Although Brazil is a likely candidate for a ratings upgrade, how quickly it will happen is dependent on how well the government can overhaul the mix of its R$985bn of domestic debt. Danielle Robinson reports.

With nearly 90% of the Spanish financial system already using cédulas hipotecarias as a funding instrument it is no wonder that Spain is Europe's largest jumbo covered bond market. And with new borrowers discovering the attractions of cédulas as an alternative to or ally of RMBS, Spain is set to remain dominant. Neil Day reports.