Search results for

AT&T Canada, a telecommunications provider, is considering unwinding some of its foreign exchange swaps as a way to raise about CAD100 million (USD157 million), because the exchange rate has moved in its favor, according to a company official in Toronto. "Right now we're taking a look at all our past currency swaps to see if there is any way they can be unwound so we can raise Canadian dollars," the official said. One of the options, to raise part of the cash, is to unwind a five-year swap it completed last year on a USD250 million fixed-rate note (DW, 3/27/00). This swap was put on when the spot rate was at CAD1.44 and that rate has now moved to CAD1.5760, according to the official. It would sell the original swap back to the counterparty and enter a new swap with the CAD1.5760 exchange rate. He declined comment on which counterparties it used for the first transaction. This would give it a profit of approximately CAD13 million, before costs. He declined to comment on exact figures.

The Bank of Western Australia, with over AUD20 billion (USD10 billion) in assets, plans to expand its use of interest-rate derivatives to include overnight index swaps, according to Clinton Ellison, an interest-rate derivatives dealer in Perth. In overnight swaps the swap rate is determined daily by brokers and the payments are compounded over the life of the swap and made at the contract's maturity. Ellison said he is expecting senior management to approve the expansion in the coming months. The bank currently uses interest-rate swaps, options and forward-rate agreements.

The Bank of Tokyo-Mitsubishi is planning to issue synthetic collateralized debt obligations next year for the first time in light of growing investor demand. "Hopefully within six months but definitely within a year," said Nobukazu Saeki, manager of the derivatives and structured products division at BoTM in Tokyo. "We're talking to the market about this." He continued that investors are now showing demand in CDOs solely linked to Japanese credits, such as the recent issuance by BNP Paribas (DW, 11/17).

What could have been a big year in bonuses for credit derivatives professionals--because of the surge of activity in synthetic CDOs and plain-vanilla business--is shaping up to be only marginally better than 2000, according to recruiters and bankers. To add to the gloom, a higher proportion of total compensation is expected to be paid in shares.

Commerzbank is looking to hire a head of global foreign exchange options trading for its London office, following the departure late last month of Jonathan Prole, head of global fx options trading. Edward Voorhees, global head of fx sales and trading in London, confirmed Prole is no longer with the bank but declined further comment. Voorhees said he has taken over fx options trading in the meantime, though he is looking to hire a replacement to manage the options book as well as deal with internal and external marketing. "I'm not looking for someone who is only a dynamic trader or just a pure marketer," he noted.

Much of the considerable growth of the credit derivatives market has been driven by the use of the default swap as a proxy for cash instruments. This is predicated upon the assumption that a default swap and a par floater or asset swap (on a par asset) closely replicate the same credit exposure. However this relationship is not exact and this is reflected in the market where we observe that significant divergence can occur between default swap and cash spreads. We call this spread divergence the default-swap basis and define it as follows:

Pioneer Alternative Investment Management has entered an asset swap to hedge the underlying credit risk on a convertible equity option it purchased for one of its convertible arb funds. Oliver Owen, fund manager for Pioneer's EUR25 million (USD22 million) convertible arb fund in Dublin, said the fund entered an asset swap on South African Breweries to strip out most of the credit risk from the fund manager's purchase of the equity component of an SAB convertible bond.

Dresdner Kleinwort Wasserstein has hired Darren Smith, a collateralized debt obligation structurer at UBS Warburg, as co-head of its CDO group in London. He starts in the new role next month and joins Jeremy Vice, who was head of the group. Vice said the hire comes as the firm expands its structured credit business. "There will definitely be more [CDO hires] to come, we are in the market looking," he said, declining further comment. Smith is between positions and could not be reached.

Five-year protection on Italian carmaker Fiat widened by about 30 basis points last week on the back of the company's USD2.2 billion convertible bond offering, as convertible arbitrage hedge funds flocked to the credit-default swap market to strip out credit risk. Fiat spreads widened to 160bps Wednesday from 130bps at the start of the week. One trader noted the spreads temporarily tightened Wednesday morning in London to 140bps, only to widen Wednesday afternoon when U.S.-based hedge funds sought protection as part of the convertible deal. "The convertible players are looking to hedge the convertible with credit-default swaps to arbitrage out the equity option," said one trader in London, adding the spreads widened back out again in the afternoon in London when the U.S. market was open. "They are more powerful than the European hedge funds," he noted.

Mumbai-based SBI Funds Management, with USD800 million under management, is planning to pull the trigger on its first rupee interest-rate derivative next year. Sarvana Kumar, head of fixed income in Mumbai, said the fund manager is looking to enter an interest-rate swap to convert a portion of its USD500 million fixed-rate bond portfolio into floating. He declined to estimate how much of the portfolio it would convert. It is planning the move because it expects interest rates to rise, possibly by 50 to 100 basis points, next year.

Speculation that Japanese policy markers are contemplating printing more yen to combat the country's spiraling deflation caused a surge in demand for yen puts/dollar calls last week. As a result one month yen/U.S. dollar implied volatility rose to 10.10% Wednesday from 8.5% a week earlier, according to New York-based traders. Spot rose to JPY126.50 last Wednesday from JPY125 a week prior.

The International Swaps and Derivatives Association is looking to overhaul its 1992 master agreement as well as update credit and equity derivatives definitions for next year. The initiative is part of an ongoing effort to update ISDA documentation, which is used in the majority of over-the-counter transactions.