Search results for

The spread between Australian credit derivatives and bonds has widened because of banks structuring synthetic collateralized debt obligations and that's creating opportunities to arbitrage credit default swaps. "Traders have been actively taking advantage of opportunities available in Western Mining and Australia Gas Light Company (AGL)," said Jim Fingleton, associate director of fixed income atSG Australia. As CDO structurers look to diversify out of U.S. and telecom debt, demand for Aussie exposure has increased which has meant synthetic CDO structurers have been selling protection. The end result is that the market has become skewed toward sellers.

Westdeutsche Landesbank plans to expand the coverage of its structured asset products group from Germany to other European markets. The department currently markets structured products, such as constant maturity swaps, credit derivatives and Bermudan options, just to German clients, according to Thorsten Goettel, head of the group in London. The bank plans to hire two more marketers to add to the existing six-member team before year-end.

Westdeutsche Landesbank has hired Hiroshi Fukuzawa, head of credit fixed income at Bank of America in Tokyo, as a managing director and head of credit derivatives. Fukuzawa was a v.p. in credit derivatives and asset securitization in Tokyo when he left West LB a year ago. He runs credit trading, structuring, and sales and reports to John Paul Garber, global head of asset securitization principal finance and credit derivatives at West LB in London. Garber was travelling and could not be reached. Fukuzawa said he will look to add a junior trader by year-end to the three-strong team and will likely hire additional staff next year, declining to elaborate. At Bank of America, he reported to Jim Kelligrew, head of global high-grade fixed income in Charlotte, N.C.

Meeder Financial will raise its cash position from zero to 50% of assets under management by selling $400 million in bonds--$360 million in Treasuries and $40 million in agencies. The move will cut the duration on the portfolio in half, to 2.25 years. Joe Zarr, portfolio manager, says he anticipates an impending economic turnaround with the end of the easing cycle, and aggressively shortening duration is representative of a belief that rates will back up from current levels. The large cash position is designed to have assets ready for reinvestment at an undetermined future date.

Reinhart, Mahoney & Bryden, a Mequon, Wis.-based firm with $700 million in taxable fixed-income under management, is seeking to shift up to 5%, or $35 million, to its corporate allocation. Jeff Bryden, portfolio manager, says he is waiting to be sure the economy has bottomed, and will read the text of last week's Federal Reserve press release closely, but did not specify a definitive time-frame for making the move. He declined to name specific credits or sectors he is interested in. He wants intermediate maturities to raise the duration on his intermediate portfolios closer to the fund's bogey, though he says much will depend upon the shape of the yield curve when he invests.

Chris Towle, portfolio manager with Lord Abbett & Co., is rotating $225 million, or 5% of the portfolio, from pass-throughs into high-yield corporates in anticipation of a high-yield bond rally. Towle foresees a global shortage of yield that in turn will increase the bond market's appetite for junk bonds. He justifies this by comparing the historical high-yield average 573 basis point spread over the 10-year Treasury against last Monday's level of 775 basis points, and concludes there is room for further tightening. The rotation began a month ago and will continue for another couple of weeks as buying opportunities present themselves.

Golf is good...a golf outing last week gave traders a chance to meet as a group. Some pride themselves in their golf swing as if they're Tiger Woods in their downtime. But another said these outings involve more socializing than golfing. "Maybe two percent of the guys that go to this actually golf. The rest just swing at the ball and hope for the best," he said with a laugh.

BPS Associates, a Bloomington, Minn. manager with $800 million in taxable fixed-income under management, is seeking to add 5-10%, or $40-80 million, to its current mortgage-backed security allocation as it receives new money this autumn. Lew Coffey, portfolio manager, explains that because many of the manager's clients are agricultural banks, it regularly receives substantial new money in the autumn when farmers tend to take in most of their revenues. The MBS paper he favors is collateral mortgage obligation tranches, because it allows him to pick up additional yield, because many managers are not prepared to do the work necessary to understand the structure. That said, he prefers fixed- to floating-rate CMOs, because they have fewer variables and are easier to evaluate.

Wyndham International's bank debt dipped to 96 5/8 in a $2 million trade. Dealers say while nothing new has come out on the company, technicals could be what's dragging down the name. Players active in Wyndham could not be ascertained. Dealers say a slowdown in the hotel industry is pushing down levels, but a few say a lingering rumor of an acquisition by Bass Hotels & Resorts should help stabilize levels in the long run. "There are holders with large positions who are looking to reduce their exposure, and no buyers," a trader explained of the falling prices. Wyndham, based in Dallas, Texas, owns and operates 240 hotels. Calls to Rick Smith, cfo, were referred to spokeswoman Darcie Brossart, who could not be reached by press time. Another dealer noted that hotels are taking a hit in the economy. "This is no surprise that it's drifted lower, but nobody is hitting the panic button," he observed. A market player called the latest trade "lowball. I'm not sure why it traded there. It hadn't been moving because so many have the paper," he said. "News of an acquisition is coming out again, and it seems more real. But the market has been so slow [to react]." Last spring the company's debt traded up to 99 1/2 on a buyout rumor involving Bass Hotels & Resorts (LMW, 5/27). Talk of interest in the company pushed up levels. Wyndham has a $1.3 billion deal that breaks down into three tranches. Pricing is LIBOR plus 33/4%. J.P. Morgan is the lead arranger.

Canadian banks are expected to post 10-15% sequential increases in impaired loans across sectors this quarter, compared to a 4% rise in impaired loans from the large U.S. banks, according to a report from Goldman Sachs analyst Heather Wolf. The increase is due to illiquid secondary markets for telecom assets, to which Canadian banks have a greater proportional exposure than U.S. banks. The increase among U.S. banks would have most likely been up to 14% if they had not been able to sell distressed loans from sectors other than telecom into the secondary markets. A banker commented the Canadian banks tried to penetrate the U.S. market through the syndicated loan business and offered lines to the telecom names. Although some Canadian banks, particularly Bank of Nova Scotia, have been able to capitalize on improved liquidity in the secondary market for highly collateralized credits, liquidity has remained tight for credits with few hard assets, especially telecom, according to the report. An official at Royal Bank of Canada, however, said that RBC has a strong emphasis towards investment grade exposure and believes lumping together all the Canadian banks is incorrect. A banker at CIBC World Markets also noted that U.S. banks are in the same position. Spokespersons for RBC, CIBC and Toronto Dominion declined to comment on the analysts' report. Spokespersons for Bank of Nova Scotia and Bank of Montreal did not return calls.

Houston-based Equistar Chemicals has secured an $800 million bank deal and sold an upsized $700 million offering of 144A seven-year notes as it seeks to refinance debt. Pat Quarles, director for investor relations, said the producer of ethylene and petrochemical substances wanted to extend maturities on existing debt and maintain a healthy mix in the capital structure. Equistar has a $1.25 billion credit facility that matures in November next year and has $986 million drawn on it, he noted. He declined to comment on the exact structure of the loan as the deal has not yet fully closed. The five-year revolver, which according to bankers is led by J.P. Morgan and Bank of America and totals $500 million, funds short-term cash needs. Quarles declined to confirm banks on the deal. The six-year $300 million term loan "B" enables flexibility, he explained, noting there are no penalties for pre-payment on a term loan, which occurs on a bond issuance. Credit Suisse First Boston and Salomon Smith Barney led the note offering, which was originally slated at $500 million of seven-year, non-call senior unsecured notes. Originally the term loan was $500 million but was downsized in favor of the notes. Quarles would not comment on reasons for the switch in favor of the notes. J.P. Morgan and B of A led the last credit facility in 1999. Standard & Poor's has assigned a BBB rating to the credit facilities, citing the strength of the collateral package in a default scenario, but also the ongoing deterioration of business conditions in the petrochemical sector. Ratings could be lowered if profitability continues to suffer in an industry hit by elevated natural gas based feedstock and energy costs.