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The $220m L/C facility for Eastern Group Finance has closed oversubscribed. The signing took place in early July and was guaranteed by TXU Europe Group. Bayerische Landesbank (bookrunner and L/C fronting bank) and KBC (agent) arranged the facility. Landesbank Sachsen, HypoVereinsbank, NordLB and Landesbank Schleswig-Holstein join the arrangers.

? Bank of Scotland Treasury Services plc

? Coamerica Rating: A2/A

Volkswagen's head of capital markets, Albrecht Moehle, shares his views on the market... Q. How has your borrowing strategy changed as the market has become more credit aware? A. Our strategy has changed, but not because of increased credit awareness. We are not a frequent borrower. We are moving away from traditional ways of financing, away from credit lines and into the capital markets. We have finalized the update of our groupwide debt issuance programmes, signalling to the market that we are looking for a diversified funding resource. Q. How do you reassure investors about your credit? A. Generally speaking we do not do roadshows and we did not feel it necessary to do a benchmark deal. We prefer to rely on our rating. Volkswagen has had a good and close relationship with Moody's and Standard & Poor's for the last 10 years. The annual rating reviews are always very detailed. As long as we have a stable outlook our good name recognition means that there is no need for a roadshow to meet investors. The one exception is if we are trying to open up a completely new investor base. For example, last year we signed a Z600 million domestic CP programme and we did a roadshow in Poland for this specific new investor base. Q. How important is it to be a pan-European household name in selling your story? A. It definitely helps being so well known. And if you are in the market rarely, like us, it helps even more. Compared to other single-As we are more aggressive. And though DaimlerChrysler and BMW are more frequent issuers we are more opportunistic. Q. Is competition increasing among corporate credits in Europe? A. Yes, definitely. The increase in activity in the corporate Euromarket is phenomenal. Much of this is due to M&A activity. Q. What percentage of your investors are non-domestic? And how does this compare to a year ago? A. Roughly 80% of our investors are from abroad. This has not changed since the start of Emu. Our dealer panel is made up of banks with huge international distribution capabilities and they ensure that our paper is sold around the world. Q. What sort of structures are investors interested in buying from you? A. We are not proactive in the market so we wait for investors to come to us and suggest things. But we are not shy of any structures. We are hardly ever offered plain vanilla. We are price-driven and plain vanilla is not competitive for us. Q. How important is it for you to be a frequent borrower, able to build your own yield curve as triple-As can? A. At the moment we are happy being an infrequent issuer. But Volkswagen Bank, which was added as an issuer to our Euro-MTN programme at the end of last year, is a new name in the market. So we might want to build a yield curve for it. Because the average life of our car loans is 60 months or less, we are not interested in issuing anything longer than five-year paper. Q. How do you feel about the market going online? Are you happy for your levels to be posted on a screen that everyone can access? A. We know that this is a development that we cannot stop. All the banks must do it. And whoever does not will lose out. As long as we can post and achieve our present aggressive levels then we do not have a problem with them being posted. We are proud of our levels and are happy for everyone to see them. Q. Do you think borrowers' relationships with their dealers will suffer as a result of online trading? A. To a point, yes. The role of banks will change. But our dealer panel do everything for us, across the world. Relationships will not suffer just because trading happens online. But the role of dealing desks will change. Q. How do you see the market developing in 2000? A. Demand will increase, issuing will increase and volumes will increase as corporates move to the capital markets. M&A activity and the lack of credit lines from banks means that capital markets will be the main funding resource for corporates.

A record $11.5bn three tranche offering from Fannie Mae dominated the primary market this week as fixed rate debt markets slipped into their customary August torpor. The transaction, which targeted two, 10 and 30 year maturities, is the largest non-government corporate or agency bond issue in dollars and the second largest non-government security in any currency, behind the $14.6bn Deutsche Telekom deal launched in June.

Austria The $140m five year term for OMV (UK) Ltd closed 50% oversubscribed this week but was not increased.

Woolwich has raised the ceiling off its note programme from $6 billion to $10 billion. Outstandings off the programme have topped $5.4 billion.

? BBVA Global Finance Ltd Guarantor: Banco Bilbao Vizcaya Argentaria SA

Japanese investors are driving the market in 2000, despite statistics suggesting the country is still in recession. Issuance in yen hit record levels as non-syndicated trades reached $28 billion for the first quarter. And buyers have increased their appetite for credit. But though issuers are rushing to mop up Japanese cash, many are frustrated that pending accounting rules in Japan mean the majority of demand is for short-dated paper. UK corporate, Scottish & Newcastle, has issued 15 yen notes this year, although nine have a one-year life or less. Alan Dick, assistant group treasurer at the company, insists there are long-term buyers out there, it just takes more work to find them. He says: "We would prefer to do longer-dated trades. Although the yen deals we issued in January and February all had one-year maturities, we've recently been able to find investors wanting to buy in the three- to five-year range. We're keen for our dealers to concentrate on finding more investors of this type for us." When spreads blew out in Japan during the crisis of 1998, Japanese money funds were able to buy domestic names cheaply. But as economic recovery has gained momentum this is no longer the case and dealers report a growing interest from buyers to hold European credits, which in many cases are cheaper than their Japanese peers. Klaus Svendsen, vice-president, at Morgan Stanley Dean Witter, explains: "The money has been there all the time, investors are just starting to divert it into European credits now. As long as there is a decent relation between risk and yield, investors are willing to get a line for an issuer if they don't have it." But for longer maturities some borrowers might not be flexible on price. Svendsen continues: "The demand for five- to 10-year trades is there, but it is difficult to get at the right spreads for single-A European corporates. I think there will have to be some changes in the Euromarket. US issuers don't get structured notes at the kind of levels European corporates demand. Borrowers are going to have to live with wider spreads if they want to achieve longer maturities." And the problem will grow when the Japanese accounting rules are introduced next year. Institutional investors will have to mark-to-market bonds of over one year giving them even less incentive to buy long-dated notes. In the first quarter of 1999 non-syndicated yen issuance for notes of one year or less was $3.36 billion, compared to $10.74 billion in the first quarter of 2000. Gavin Eddy, executive director and head of Euro-MTNs, at Warburg Dillon Read (WDR), believes marking trades to market is making investors wary of long-dated notes. "It's had a big impact on the market already and the full implications are not yet clear. Japanese investors are taking it very seriously and that is being reflected in what they're buying. Business in the long-end has been particularly affected with investors shying away from structured trades. Instead we've seen a growth in vanilla credit business," he says. But for many European corporates the shift towards lower credits is welcomed. Simon Lane, director of corporate finance at Safeway, was surprised by how quickly Japanese investors snapped up its paper. He says: "For single-A credits setting the right pricing levels there is a good deal of demand out of Japan at the moment. We were very pleased with the quick response we got from that market." The drop in structured yen notes has been dramatic as investors don't want to mark complex trades to market. From January 1 to April 31 1999, structured deals made up 16total non-syndicated yen trades. During the same period this year that fell to 7according to MTNWare. Yet the head of Euro-MTNs at a top Japanese house, doesn't believe that with a zero interest rate Japanese investors will stay away from structures. He says: "Plain vanilla is easy to calculate and record for accounting purposes. But simple structures, such as callables and the CMS will continue to be popular. They are easy to understand and measure." But possibly it is not just Japanese investors adding to the surge of yen trades. Barclays Capital caused a stir last month when it was sole dealer off a handful of large-sized, non-syndicated yen deals, including a ¥85 billion ($806 million) note for KfW. This is 40 times larger than the average size of non-syndicated yen deals in 1999. Dealers have been speculating on the identity of the investor, rumoured to be a Barclays-owned fund, since no deals have turned up in the secondary market. Barclays Capital has repeatedly refused to comment, saying they have no need to justify the nature of their trades or investors. Dealers predict subtle changes in investors' choice of yen notes, but say that liquidity should remain high with so much cash flowing and short-dated notes rolling over. Yen looks set to remain number one for some time. Eddy, at WDR, says: "The volumes are set to continue. However we expect some shift from fixed rate notes into FRNs. It's looking likely that the zero interest rate will end during the second half of this year, which combined with anticipated yen strengthening will start driving investors in new directions."

On September 9 this year, the Polish government gave the go ahead for Cedel and Euroclear to settle trades denominated in zloty. It is a breakthrough for issuers and investors wanting exposure to the currency, since discussions have been in the pipeline for over a year. Dealers predict that with a more straightforward trading process now in place, investors will soon be grabbing opportunities for yield pick-up in the sector. First to take advantage of the relaxation in the law was European Bank for Reconstruction and Development (EBRD), the most active borrower in zloty so far this year. Within weeks of the announcement it had issued two Z250 million ($60.91 million) fixed rate trades, lead managed by TD Securities (TD). They were the first pure zloty notes enabling investors to get direct access to the currency. Prior to this, non-Polish investors could not hold zloty outside Poland. All zloty trades were synthetic, that is, trades were linked to zloty rates, but interest, principal payments and settlement were all transacted in other currencies. Zloty is a relatively small sector with $784.48 million outstanding off 27 trades this year, according to MTNWare. But most dealers agree this regulatory step forward will dramatically open up the market. Olivier Jalouneix, head of Euro-MTNs at Morgan Stanley Dean Witter (MSDW), believes it will encourage more investors to experiment. He says: "Clearing and settlement impediments always slow down issuance. The easier a currency is to trade, the more investors will feel comfortable getting involved." Yet Lourens de Beer, director of local markets at Westdeutsche Landesbank Girozentrale (WestLB), is uncertain that pure zloty trades will be snapped up. He says: "Now that notes can be fully settled in zloty it will be interesting to see if that becomes the dominant trend. Our investors have, in the past, preferred to settle their Polish notes in euros or dollars to avoid the FX settlement risk." TD is the leading dealer of zloty MTNs, this year. Edward Mizuhara, vice-president, debt syndicate at TD, explains one reason for zloty demand. He says: "In comparison to Czech koruna, where rates have fallen over the past two years, zloty offers an attractive yield premium and there has been a fair amount of interest. A number of investors have switched out of sectors that have appeared to have run their convergence plays, such as drachma and koruna, into zloty." But to date zloty issuance has only been possible for highly-rated credits. The majority of issuance in zloty has been from triple-A supranational borrowers and financials. No single-A or triple-B issuer has ever sold a zloty MTN. Investors taking currency risk won't gamble on credit too. Jalouneix, at MSDW, says: "Obviously with only top borrowers issuing in zloty investors are not taking more credit risk than for a standard Euro-MTN. The risk with the currency-linked note lies in the possibility of a political or economic event in Poland." But de Beer, at WestLB, believes that lower credits will soon be visible too. He says: "I expect to see triple-B borrowers issuing in zloty, but investor appetite is not there at the moment. Investors can get good returns with zloty without looking for more exotic credits. But if spreads tighten, then investors may move down the credit curve." And zloty issuance is investor driven in other ways. Due to the downward slope of the zloty yield curve many investors shy away from long dated paper. Out of EBRD's eight zloty trades in 1999, only two had maturities longer than three years. An official, at EBRD, says: "Zloty has an inverted yield curve so it is easier to sell shorter-dated notes but we are a flexible issuer and not opposed to issuing in the long end." Yet John Vax, managing director, Commerzbank capital markets, in Prague, points to the other side of the coin. He says: "There are investors keen to buy at the long-end. They are interested in convergence plays and if you have this view you want to go as long as possible." Last week, the first Polish issuer Telekomunikacja Polska, signed a $1 billion Euro-MTN programme. It will, no doubt, be the benchmark for Polish corporate issuers. Dealers believe Poland holds potential for new borrowers, although most agree that issuance in zloty would be particularly difficult for them. De Beer, at WestLB, says: "Looking at the experience in South Africa, we have not seen a proliferation of issuers coming to market. Investors who have done their credit work often prefer to go to the domestic market. The risk in zloty is very different to the risk involved with a Polish credit issuing in zloty." And zloty is leading the way for other Eastern European currencies. There has been demand for Slovak koruna, since the EU commission announced it might join Emu in the next phase. In 1998 there was no Slovak koruna MTN issuance, but there have been 10 trades this year, according to MTNWare. Zloty will remain an appealing option for investors seeking enhanced yield, but dramatic growth probably won't be seen until greater economic stability is achieved in Poland or membership of Emu looks more certain. An official, at EBRD, says: "It all depends on market conditions, the zloty is volatile now, but when rates hike again, there will be demand for the currency. There will always be interest now and then when the levels are good."

Zurich US (Zurich) unveiled a new political risk insurance product on October 25. It is the first private insurer to offer such a package. And if the company's claims are correct it could dramatically increase opportunities for emerging market issuers to sell private placement MTNs. But in the wake of Russia's collapse and volatility in Asia, investors are still nervous of risk. Insurance may not be enough to bring buyers back to high-yield markets. Daniel Bond is chief economist and vice-president in the sovereign and international public finance group at Duff & Phelps (DCR). He explains: "There are many strong corporates with credit worthiness that are kept away from the international markets because the sovereign foreign currency rating is below investment grade. With this type of coverage on offer, a corporate's rating can be raised above that of its sovereign and into investment grade." Zurich's insurance could provide emerging market borrowers access to previously unobtainable investors. Andrew Dell, director, global syndicate emerging markets at ING Barings (ING), says: "The product squeezes double-B issuers up to investment grade levels and opens them up to a new universe of investment grade buyers. It is another mechanism to aid the broadening of emerging markets." Yet he is sceptical about whether some investors will bother with insurance in a positive market environment. He says: "If the market is strong these products aren't needed. In bull markets investors want to take the naked risk and pick up yield." Other dealers don't think insurance will lead to significant expansion in Euro-MTN issuance from emerging markets because traditional high-yield paper buyers won't be interested. If an investor pays for insurance to reduce risk then its final yield will be less. One dealer says: "Credit-linked notes are already offering the same kind of insurance on a transaction when the principal is protected. There isn't any real added advantage to having an insured note." Issuance of emerging market debt plummeted in the fourth quarter of 1998. Non-syndicated debt issued by Brazilian borrowers fell from $160.73 million in the third quarter of 1998 to $37.03 million in the fourth, and Mexican non-syndicated trades fell from $775 million to $195 million for the same period. But dealers report a steady recovery in 1999 and are positive about growth in 2000. Daniel Riordan is vice-president and managing director of the political risk group at Zurich. He is confident Zurich's insurance product will make a difference for issuers who are having difficulty selling paper. He says: "There is continuing concern about emerging markets, particularly in the light of the crises last year in Asia and Russia. And many banks are still shy of underwriting bonds in such markets. This product should reassure investors who are nervous about risk." Zurich's policy covers political risk events including currency inconvertibility, political violence, and expropriation. Currency devaluation is not covered. The product will be bought by banks which act as trustees for the investors. From the date of an event, Zurich typically waits 180 days before taking over debt obligations. It expects its main areas of focus will be Mexico and South America. World Bank and Overseas Private Investment Corporation (Opic), a US government agency, already offer political risk insurance. Zurich has closely tracked the pattern of Opic's product. However, Opic has restrictions on coverage due to US government policy issues such as human rights. Zurich, as a private company, does not. But Bond, at DCR, points out that in buying Zurich's product investors take on the credit risk of the company. He says: "On the negative side Zurich US does not have a track record yet for payment on this type of policy. As a government agency there is little risk on Opic's ability to pay or willingness to pay. Zurich is a private company with business and profit pressures, it may be more likely to deny claims than Opic." Zurich will cover up to $100 million per transaction and maturities with a term of up to 15 years. Out of the 22 non-syndicated notes sold by Argentinean borrowers in 1999, only six had maturities longer than three years. Bond says: "Five years ago there would never have been this type of coverage for issues with lengthy maturities. Private sector insurers are entering a brave new world but it will encourage growth in issuance." The idea looks set to catch on. Riordan, at Zurich, expects more insurers will bring out policies in line with those of Zurich since he claims there is high demand for the product. He says: "We are already seeing interest from our competitors who are asking to see copies of our policy." Most dealers agree that insurance will be a tool to aid growth in emerging markets. Although some have reservations about how fast this will occur. One dealer says: "Big steps have been made in 1999 in emerging markets but there is still a lot of nervousness among investors. There is much scope for growth with this type of insured product but it is unlikely to be rapid." And Dell, at ING, points out that it is not a solution to wider problems. He says: "Insurance will encourage nervous investors, but it is not a universal panacea. It does not guarantee placement of paper - that always depends on the state of the market."

Fannie Mae set a new record in the dollar markets this week with a blow-out $11.5bn three tranche offering.