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Calpine's bank debt moved up a couple of points, trading as high as 91-92, after the company announced that restructured agreements with its turbine manufacturers would allow it to avoid $3.4 billion in future capital expenditure commitments. While the company will not receive any cash back from the cancellation of the contracts, it does have credits with the manufacturers if it decides to move forward with turbine production at a later date, a company spokeswoman explained. Calls to Michael Thomas, senior v.p. of treasury, were referred to the spokeswoman.

A threshold structure is an intuitively appealing alternative to standard equity put options for creating a guarantee. An investor defines a target asset that needs downside protection. This target asset is often an equity index but it could also be a pool of hedge funds or almost any other type of investment that can be traded. Downside protection is achieved by systematically rebalancing the investor's portfolio into a security that will mature at some desired threshold level (e.g. the zero coupon bond) whenever the portfolio declines in value relative to that threshold. If the target asset rises in value, all else being equal, then funds are rebalanced out of the bond back into the target asset in order to maximize upside participation.

Banc of America Securities plans to make new hires for its New York-based equity derivatives trading operation, said officials familiar with the firm. It could not be determined whether the recruits will fill newly created positions or replace departed staffers. Jennifer DiClerico, spokeswoman at BofA in New York, did not return calls.

Credit Lyonnais is planning to hire a weather derivatives marketer in the first quarter and is interviewing candidates. The firm hired Peter Brewer, structurer in weather derivatives in London, from Aquila in May to build up its presence in the weather market, and because Credit Lyonnais has seen adequate demand for weather derivatives products, it would like to have a marketer dedicated solely to the effort, Brewer said. Currently the products are sold through marketers that sell a wide range of products, including weather derivatives.

An expected resurgence in mergers and acquisition activity in Australia this year will likely filter into over-the-counter equity derivatives, according to Aussie equity professionals. "Last year it was rather lackluster but it seems to be back on the radar," said one equity head. As the economic environment has stabilized after the shock of Sept. 11, corporates in Australia are again looking at M&A.

Credit derivatives traders and investors are awaiting the resolution of outstanding credit default swaps (CDS) on TXU Europe Group and market professionals say the outcome likely will set a precedent for how the CDS market responds to future bankruptcies. TXU Europe filed for bankruptcy in November but CDS contracts were written on TXU Europe Group.

Five-year credit protection on El Paso Corp. dramatically widened last Wednesday, blowing out to 1,250 basis points, from 1,000 bps where it had traded the previous week, said a New York-based trader. The move followed an announcement by the energy company last Wednesday of its intention to cut its dividend by as much as 82%, sell USD2.9 billion in assets and cut capital spending, the trader noted.

Fitch Ratings expects to change the ratings methodology it uses for collateralized debt obligations to bring it in line with the methodology it uses on n-to-default structures, according to Stefan Bund, senior director in London. The agency published a report on the importance of correlation in rating n-to-default products last week.

Euro/dollar risk reversals continued to favor euro calls/dollar puts last week, but interest in the risk reversal dropped last week as investors who were long euro calls took profits. Traders said the 25-delta risk reversal fell to 0.45% Thursday from 0.9% earlier in the week and implied volatility stayed in a range from 10.2-10.6%.

Credit portfolio risk managers at several firms in Europe, including ABN AMRO and JPMorgan, are attempting to kick-start a bilateral credit default protection market to better manage their exposure to names that are not among the approximately 120 most actively traded. Risk managers either can't find quotes or are quoted mile-wide bid/offer spreads on names outside the 120 list, according to market officials. The solution, which could dramatically increase the depth of the credit derivative market, may be to match up natural buyers and sellers of protection on a given name or group of names, because, unlike dealers, both buyers and sellers have an incentive to arrive at transactable prices, said a credit portfolio manager.

Al Vinjamur, co-manager of a quantitative group at hedge fund manager SAC Capital Advisors in New York, is reportedly considering the launch of his own U.S. equity long/short fund. Reached at home, Vinjamur denied having plans to leave SAC or launch a new fund, but added that he is taking some time off. "I'm very happy working at SAC," he said. "I've no plans to leave."

JPMorgan next month is bringing aboard Han Joon Kim, v.p. in fixed income covering Korean corporates at Goldman Sachs in Hong Kong, in a similar role for its rates desk in Seoul. "We didn't think our size was big enough to fully tap the market--we wanted to hire a senior guy," said M.H. Kim, treasurer in Seoul, to whom Han Joon Kim will report. Officials familiar with the situation said Kim wanted to relocate to Seoul for family reasons.