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The European asset backed market drew breath briefly this week as issuance paused after the autumn torrent of deals sped on right through the new year. A notable trend in 2001 was the emergence of auto loan securitisation as a substantial sector of the European market for the first time, and that looks set to continue. The finance arms of car manufacturers are increasingly turning to securitisation as a cost effective funding source.

Lehman Brothers has bought more than USD3 billion (notional) of one-month yen puts/U.S. dollar calls struck at JPY133 in the last three trading days, according to fx options traders on the other side of the positions. One-month volatility surged more than 1.5% during the three-day span. Traders at Lehman declined to comment.

Dresdner Kleinwort Wasserstein is looking to revive its credit derivatives trading desk in Tokyo next month with the hire of Mike Gordon, manager of Enron Credit in Tokyo, according to officials familiar with the situation. Gordon, who was let go last month after Enron collapsed, is expected to sign on with DrKW in the coming weeks. A DrKW official declined comment on Gordon, but said, "we're evaluating additional hires for the credit desk in Tokyo," noting that the firm will likely hire an additional structurer and trader within six months. Gordon could not be reached for comment.

Kmart, the struggling discount retailer, is said to be looking to refinance $1.6 billion in credit facilities and slap on an additional $400 million, but bankers say the company will have to pay up to get it done. Kmart is looking at a $1.5 billion revolver and a $500 million institutional tranche, said a banker. "Some relationship lenders will probably bail," he added, and the institutional tranche will widen the universe. The spread is currently LIBOR plus 1%, but for a BB credit is more likely to be in the LIBOR plus 2 1/2% range, sources said. Bankers have suggested the company will have to go down the asset-based route in order to leverage the mass of inventory and assets rather than rely on an uncertain cash flow.

Andrew Barnard, head of U.S. convertible arbitrage trading at Goldman Sachs in New York, has left his position to join hedge fund JD Capital Management, in Greenwich, Conn., according to the fund's founder David Rogers. Barnard, who worked under Rogers during part of his nine-year stint at Goldman, started at the hedge fund two weeks ago and will be working to develop its convertible arbitrage group. Barnard will have direct oversight of the group. Rogers, a former Goldman Sachs equity derivatives head, started putting together the hedge fund in June and has scheduled for a February launch. He is hoping to raise USD350-400 million for the multi-strategy fund, which will incorporate relative value and arbitrage strategies (DW, 11/19/01).

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).