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Dynegy Corporation's bank debt traded down to 85 last week on anticipation of downgrades for several energy companies. The credit had been a par name and was said to be sold off by original holders. The size of the piece could not be determined. NationsRent's debt was quoted into the mid-50s following an announcement early last week that the company had filed for Chapter 11 protection. The company announced on Dec. 17 that it had filed in an effort to restructure its debt and has obtained $55 million of debtor-in-possession financing led by Fleet Bank. An estimated $50 million of Leap Wireless' bank debt has traded in the 76 range this week, which is down from 78.

Abbey National Financial Products has structured the first USD10 billion arbitrage asset-backed commercial paper program to be structured entirely as a synthetic product. Adrian Mallinson, credit derivatives structurer in London, said it set up the program to transfer the credit risk of highly-rated asset-backed securities off its balance sheet with minimal credit enhancement. The reference entities will likely include, credit card debt, student loans and mortgages and over 75% of the portfolio will be AAA rated.

Aquila Energy is developing what is believed to be the first guaranteed crop-yield derivatives for U.S. agricultural middlemen and plans to hedge the products in the weather derivatives market, said Ravi Nathan, general manager in Kansas City. The derivatives are due to be rolled out in time for the spring growing season.

Steven Block, head of interest-rate trading at Commerzbank Securities in New York, left as part of the department's restructuring. Ashwin Kumar, head of fixed income proprietary trading in New York, has taken over Block's duties and no replacement for Block will be appointed, according to Edgar Mitchell, spokesman in New York. Mitchell declined comment on why Kumar was appointed over Block and whether Block was fired. Block could not be reached.

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.