Search results for

Ensuring liquidity should be the primary goal in negotiating an ISDA Master Agreement (the "Agreement") for smaller, non-rated customers, such as a hedge fund or a middle-market corporation. Often highly leveraged and with little room for error, these customers should focus their efforts when negotiating the Agreement with a dealer on limiting the dealer's opportunity to terminate the Agreement. Unfortunately, however, customers (typically through expensive outside counsel), often instead use up valuable negotiating capital on esoteric legal issues that may only remotely affect a customer's situation.

MBNA Corp. recently entered into a 10-year EUR750 million ($672 million, notional) currency swap with an undisclosed counterparty. Vernon C. Wright, executive v.p. and chief corporate finance officer, said the Wilmington, Del.-based credit card company entered the swap to convert U.S. dollar-denominated receivables into euros. It will pass on the euro swap payments to bond investors that purchased a euro-denominated asset-backed security issued by MBNA, he explained. Wright declined to detail the swap rates. He added that MBNA occasionally uses interest-rate swaps.

Handelsbanken Trading plans to offer interest-rate and credit structured products for the first time and start making markets in credit default swaps. Tony Lindlöf, head of structured products and syndicated loans in Stockholm, said the department would hire structures and transfer existing employees. He declined further comment.

UBS Warburg is structuring a synthetic collateralized debt obligation based on a $2 billion reference pool of Aaa/Aa rated asset-backed securities. The deal, dubbed North Street 2001-3, is unusual as it is one of only a handful of publicly rated synthetic CDOs on a reference pool that is not composed of corporate debt, according to an official familiar with the structure. It could not be determined by press time whether the transaction is intended to remove credit risk from UBS' own balance sheet or if the deal is on behalf of a customer. Calls to UBS officials were not returned.

One-month implied volatility on the Brazilian real/U.S. dollar hit a two-year high last week as the economic turmoil in Argentina continued to affect Brazil. On Wednesday, one-month vol was at 21%, according to James Kennan, v.p., Latin American currency options trading at BNP Paribas in New York. This is the highest Brazilian real vol has traded since April 1999, when Brazil was recovering from its devaluation crisis. In late March one-month vol was at 13.5%.

Cavanaugh Capital Management is selling intermediate sector treasuries and buying intermediate agencies because of the attractiveness of agency spreads on a historical basis, according to President Jim Dugan. Dugan characterizes this move as a rotation from a treasury allocation of 35% to about 23%, or $65 million dollars, noting that he is about halfway done. He says that in addition to the possibility of capturing some spread tightening in the GSE paper, he also sees the three- to seven-year treasury market as being at the tail end of a year-long rally, and is anticipating a gradual back-up in rates as economic growth slows and inflation trends (slightly) north.

American United Life has been putting new cash flows to work in heavily structured CMOs to get the duration they need to meet their asset and liability needs, according to portfolio manager Kent Adams in Indianapolis. Adams, who oversees the firms $4.7 billion fixed-income account for its insurance company parent, particularly likes NAS (non-accelerated senior) bonds, especially the AA tranches, for their stable prepayment and extension characteristics. This paper is crafted from whole-loan Jumbo (mortgages issued in amounts greater than $272,000) CMOs and Adams says that he is drawn to it because of the attractive spread levels they offer, usually 170-200 basis points off the curve. Moreover, Adams says that with some seasoning, these bonds can often receive ratings upgrades, and tighten a further 25 basis points. Adams also has been buying RELO bonds, or CMOs carved from mortgages issued to people who relocate frequently. While he acknowledges that the prepayment speeds are high, they are consistently stable and the bonds pose little threat of extension risk. Adams has been buying them at up to 200 basis points off the curve.

Hyperion Capital Management is looking at rotating $100 million from U.S. corporates to ABS for over the next two quarters, as soon as corporate spreads go back to more normal historical levels against swaps, says Dominick Bonnano, portfolio manager with the New York-based investment firm. He sees this as being perhaps an additional 20-30 basis point further in along the five-10 year swap curve, but would not speculate as to when this might occur, other than to say it will happen in the next two quarters.

Code red! One trader made a clever play on words last week when asked to describe a plunging credit. Dealers are routinely asked to give "color" on a deal, and many usually go into a synopsis of the credit's history or reputation. This dealer cut right to the chase and gave the credit real color. "Red," he replied. "Just flashing red."

Joe Carson, a sellside economist for nearly two decades, most recently at UBS Warburg prior to its merger with PaineWebber, has joined Alliance Capital Management in New York. As U.S. economist, Carson reports to Selig Sechzer, head of fixed-income economic and risk research in New York. Sechzer describes Carson's duties as "working on a real-time basis with our traders and portfolio managers," as well as putting out a weekly piece for internal use. Carson, who joined two weeks ago, would not comment on his appointment.

Bank of America's $150 million credit for apparel retailer Ann Taylor is reportedly oversubscribed after two weeks in the market, said bankers, who noted the credit is supposed to close early next week. CIT Group and Transamerica have reportedly come in with commitments on the credit as well as co-syndication agents J.P. Morgan Chase and First Union and documentation agent FleetBoston Financial. Fees are 25 basis points for $30 million commitments, 20 basis points for $20 million commitments, and 10 basis points for $10 million commitments.