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Bank of America, CIBC and Commerzbank are joining a growing number of firms looking to structure hybrid products to hedge credit or bankruptcy exposure via equity and credit derivatives. The recent bankruptcies of once mighty companies, such as Enron and WorldCom, and the deteriorating corporate credit environment makes a compelling case for using both equity and credit derivatives to manage exposure, according to bankers. "In [bear] markets there is a high correlation between equity and credit," said Rajeev Misra, global head of credit derivatives at Deutsche Bank in London.

Anthem Inc., the fifth-largest publicly traded health benefits provider in the U.S. and the newest member of the Standard & Poor's 500 Index, is considering entering its first interest-rate swap in more than a decade, according to George Martin, treasurer in Indianapolis. He said the company, which issued USD950 million in fixed-rate debt last month, may seek to convert at least a portion of that deal into a synthetic floating-rate obligation. Anthem has a total of USD1.8 billion in outstanding debt.

Greif Bros. Corp., a maker of industrial packaging with annual revenue of roughly USD1.5 billion, is planning to enter interest-rate swaps to partially convert the fixed-rate liability from a recent bond offering into a synthetic floating-rate obligation. Rob Zimmerman, assistant treasurer in Delaware, Ohio, said the company did not enter any swaps as part of the USD250 million deal, which was priced late last month, or immediately after it because it hopes to get a more attractive rate by waiting. "We will be swapping it out on a scheduled basis, because the market is so [bad] right now we would be paying a high spread over LIBOR," he said.

The International Swaps and Derivatives Association is working on a revised version of the 1992 Master Agreement. Parties should carefully consider the proposed changes because these agreements have become the market standard for documenting over-the-counter derivatives.

Merrill Lynch has started to send clients research that monitors the relative value between cash bonds and credit default-swaps. Separately, JPMorgan has added U.S. dollar-denominated Eurobonds and telecom step-up bonds to its existing basis report. Chris Francis, head of international credit research at Merrill in London, said clients have been asking for this data because of the volatile nature of the basis between the two and the opportunity to capture the arbitrage.

Tullett & Tokyo Liberty, is planning to add up to five equity derivatives brokers for its White Plains, N.Y., office, said Vincent McCrudden, co-manager of equity derivatives. He said the broker, which already acts as a conduit for interest-rate and credit derivatives trades, has branched out to the equity derivatives side as part of a broader push into the U.S. equity market. It began U.S. equity derivatives operations in listed and over-the-counter securities, at the end of last year and the hires are a result of growth.

Northern Rock, a lending and savings bank, has used an interest-rate swap to convert its recent GBP200 million offering into floating-rate debt. Phil Horner, head of derivatives in Newcastle-upon-Tyne, said the company typically converts its fixed-rate exposure into floating-rate. In the swap, Northern Rock receives the coupon on the bond offering, which is 7.053%, and pays a floating rate of LIBOR plus a spread, which Horner would not disclose.

UBS Warburg has established a global structured products unit and has lifted a number of Merrill Lynch bankers to staff it. The department will use internal debt and equity trading desks to tailor structured products for UBSÕ clients, according to an official. Harish Raghavan, managing director in MerrillÕs special projects group, will head the desk.

Progress Energy, a utility serving the Southeastern U.S., is planning to enter interest-rate swaps to alter the profile of its USD11 billion debt portfolio, said Greg Beuris, director of financial operations in Raleigh, N.C. He said Progress Energy, the holding company for Carolina Power & Light and Florida Power and a member of the Standard & Poor's 500 Index, seeks to maintain 70% of its debt in fixed-rate and 30% in floating-rate, and is looking to enter swaps whereby it receives floating. "We had in excess of USD1 billion of swaps on earlier in the year, but we took some off and are now looking to get back in," Beuris said. He noted it unwound the swaps because a shift in the forward curve generated a profit.

Piero Overmars, head of global financial markets, will head a new department dubbed integrated debt. The department is being created by combining the global financial markets group and the loan products group. Eltjo Kok, head of the loan market group, will run the group finance division, according to a spokesman. Overmars will continue to report to Wilco Jiskoot, chairman of the wholesales business unit.

The Basel committee may eliminate restructuring as a definition of a credit event for the purposes of regulatory capital relief, a move that could have profound consequences for the credit derivatives industry. Norah Barger, chairman of the credit risk mitigation subgroup of the Basel committee in Washington, told DW, "This is still open for debate," adding, that the committee is willing to listen to industry comment.

Fiduciary Trust Co. will seek to buy up to $400 million in current coupon mortgage-backed securities to take advantage of spread widening due to expected refinancing activity. Mike Materasso, a portfolio manager who oversees a $4 billion core fixed-income portfolio, says that while refinancing risk is still high, he believes it will soon diminish. Before making the trade, the firm is waiting for spreads to widen beyond 200 basis points, or for 10-year Treasury rates to stabilize or increase. Spreads on 30-year Fannie Mae 6% notes were 198 basis points over Treasuries last Monday afternoon, while 10-year Treasury rates were at 4.24%. Materasso says Fiduciary will sell premium coupon notes to finance the trade.