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U.S. dollar/yen risk reversals fell sharply last week, tracking the spot market as the dollar rose to its highest level in months against its far eastern counterpart. Twenty-five delta risk reversals had plummeted to 0.55 vol in favor of yen calls/dollar puts by Wednesday in New York, from 1.2 vol for yen calls/dollar puts a week before. Spot moved from JPY121.70 Monday to as high as JPY123.40, it later settled at JPY121.60 late Wednesday after the Bank of Japan said it would buy stocks from its ailing banking system.

This article examines the impact of removing restructuring as a trigger event in the credit-default swap contract. It concludes that removing restructuring would be constructive and lead to greater market liquidity. It would likely shave off 10-20% of the premium. However, it is looks at alternatives for market participants who need restructuring.

UBS Warburg is considering setting up a fixed-income derivatives operation in Taiwan as the local asset-backed securities and structured bond market increases. Philip Tsao, managing director and joint head of the Asian debt capital markets group in Hong Kong, said, "A decision should be made by early next year."

Yorkshire Building Society has entered a foreign exchange swap to convert its first euro-denominated issue into sterling. Chris Parrish, group treasurer in Bradford, U.K., said the exchange rate for conversion of the EUR500 million (USD484.65 million) bond offering was set on Sept. 11 at the forward exchange rate for Sept. 26, when the offering will settle. That rate was approximately EUR0.6275. Yorkshire Building Society needs to convert its funding into sterling because its lending portfolio is denominated in sterling, Parrish added.

Anchorage, Alaska-based GCI is exploring the feasibility of bringing back to market an institutional loan that was pulled this summer amid the growing telecom mess, and the company knows any return trip will be expensive. "If we go for a refinancing, the pricing will definitely be higher than the pricing quoted in the summer," said Bruce Broquet, GCI's v.p. of finance. GCI has credit facilities coming due in July 2005, but is going into the amortization phase of the lines, he said. By refinancing early, GCI can increase free-cash flow and go after new business, he explained.

GE Capital Corp. stepped in and bought $235 million of bonds for Global eXchange Services, the business-to-business company being sold to Francisco Partners by General Electric, once the private-equity firm decided to skip the bond market. This unusual tactic is leading some investors to be even more wary of the $210 million loan that backs the transaction and is led by Credit Suisse First Boston. "This was certainly not plan A," said one banker, who noted that the 121/ 2% coupon on the bonds "is pretty expensive." One buysider, meanwhile, said "GXS is going to struggle and I cannot see it happening at LIBOR plus 33/ 4%." A GXS spokesman referred questions to a GE spokesman, who declined comment. A spokesman for Francisco Partners also declined comment on the deal.

AT&T's $4 billion commercial paper backstop facility is said to be trading in the grey market in the 94-97 range, hampering the lead arrangers' attempts to sell down their own hefty exposures. Citigroup, Credit Suisse First Boston, Goldman Sachs and J.P. Morgan co-lead the line, and are said to have taken $550 million pieces, while a number of other banks contributed at the managing agent level. "While the lead arrangers are shopping this loan, the managing agents are selling it in the mid-to-high 90s," a banker said. A banker at one of the leads denied the deal was being offered at these levels, but several bankers confirmed the levels. Officials at the lead banks either declined comment on the record or could not be reached by press time. An AT&T spokeswoman did not return calls.

Advantus Capital Management is looking to swap some $60 million in corporate issues in a bid to add incremental yield. Wayne Schmidt, portfolio manager of a $1.2 billion taxable bond portfolio, says the firm is looking to make roughly six $10 million trades out of issues that have performed well in recent months and trade inside 100 basis points over Treasuries, and into credits that the market perceives as riskier. The firm has thus far had an easier time identifying credits to trade out of that ones it wants to buy, however. Candidates for sale include the Colgate-Palmolive 5.98% notes of '12 (Aa3/AA-), an issue that came in April at 78 basis points over Treasuries. Pricing on the issue was difficult to determine last Monday, but Schmidt believes it should sell in the mid- to low-60s. Another solid performer Advantus may sell is the Gannett Company 5.5% notes of '07 (A2/A). It was trading at 76 basis points over the curve last Tuesday.

Greg Sweeney, portfolio manager at Northern Trust Management, says he will add $15 million, or 5% of the firm's portfolio, to short-term adjustable-rate mortgage-backed securities. He will finance the purchases with new money coming from bond redemptions. He says he is making the move to collect more yield while staying on the shorter end of the curve, a strategy that limits loss of principal. He says he is positioning his portfolio for the next 12-18 months for a backup in rates. He reasons that the Treasury rally is bound to end once the economy begins to recover.

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.

Tesoro Petroleum is negotiating an amendment to its credit agreement that would push out all existing EBITDA-based covenants until Sept. 30, 2003, and replace them with minimum EBITDA and maximum capital expenditure covenants, said Sharon Layman, Tesoro v.p. and treasurer. As the company tries to work out the amendment, its bank debt has been dropping steadily in secondary trading from the low 90s to 84-851/ 2. Layman declined to comment further, citing the ongoing negotiations. But market players said the coupon on the "B" piece is likely to be raised to LIBOR plus 41/ 2% and the amendment fee is 3/8%.