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The credit market has arrived. Or so say the dealers. MTNWeek polled more dealers than ever before in its fourth annual dealer survey and the overwhelming response was that 2000 will be the year of the triple-B European corporate. But these results reflect optimism on the part of dealers. Figures from MTNWare and remarks made by some dealers in other parts of the survey suggest that there is some way to go before investors become happy moving all the way down the credit curve. Currencies Euro tops the currency table, but only just (see table 1). Last year it received 18% of the vote than its nearest rival, dollar. One dealer sums up the frustration felt with the currency's poor performance: "The euro is supposed to be a reserve currency." This year it has taken a battering and it is not surprising that many dealers predict that yen will become the main currency for trading. Yen is also the currency of choice for many structures, especially CMS-linked notes, interest rate-linked notes and power reverse duals. The rising stars are Singapore and Hong Kong dollars, which have never before made an appearance in an MTNWeek dealer survey. Trading in these two currencies this year has already outstripped total issuance in 1999 (see MTNWeek, issue 180). One dealer predicts that the market will see more activity from south east Asian investors over the next 12 months. Both Scandinavian and central European currencies are predicted only modest growth. Zloty, which has become the eighth most popular currency of this year, is tipped to fall. Structures The MTN market has definitely become less focused on structures, with dealers saying that 56.68:f their business is plain vanilla (see fig 1). One leading MTN house says: "The biggest disappointment this year has been the drop-off in structured business." And another top-five player agrees: "There has not been enough structured business this year." Despite this, all dealers named structures that they think will take off in 2000. And CMS is back, winning 7.6% of the vote. The structure, which was the star of 1999, has had a quiet year, but it is back in favour. And it is only just beaten by the equity-linked notes that have dominated 2000. The plummet of the stock markets has taken the shine off equity-linked notes and these structures only manage a 10.1% share of the vote. Lightly structured notes are predicted to be the mainstay of business with callables receiving 13.9% of the vote. Credit-linked notes, which were the top structure in the 1998 survey, pick up only 0.63% of the dealers' votes. But vanilla trades, particularly FRNs, are predicted to dominate the market in the next 12 months. Floaters pick up 17% of the vote. One dealer voices a common theme: "I predict a return to defensive structures." Ratchet notes, which act a little like a collared floater, are mentioned by a couple of dealers as a less risky trade that will be popular. Issuers SNS Bank easily tops the poll as the issuer which has made best use of its programme. Last year it did not receive any votes, but the Dutch bank, which signed its euro10 billion ($9.38 billion) Euro-MTN programme in 1998, has had a very successful year. It has issued 58 notes this year, raising $3.73 billion. Abbey National, whose appearance in MTNWeek's dealer surveys is a foregone conclusion, comes in second ahead of market leader SEK and the increasingly ubiquitous Islandsbanki FBA. Volvo has done well to be the only corporate to make it into the top six. The only other corporates mentioned were fellow car maker Renault, and Scottish & Newcastle, which has had a busy 2000. SEK, for the second year running, wins the issuer most responsive to structures poll. NIB Capital, which was fourth last year, comes in second along with fellow financials, BCEE, Irish Permanent, SNS Bank and Westland Utrecht. Indeed all the issuers voted for in this category were financials. Jackson National Life, which has proved to be the most active of all the gics, received votes in both categories, but not enough to make it into the tables. It will be pleased, however, not to have been mentioned in a new category: most difficult issuer. In response to issuers naming their most disappointing dealer in the issuers survey (see issue 181), traders were given their chance to name and shame. Diageo, which prides itself on its aggressive tactics, comes out as the most difficult issuer in the market. Vattenfall is the only other issuer to be named by more than one house. However 24 other issuers are nominated. Market veterans KfW and Republic of Italy receive a vote as well as corporates Ford and Compagnie de Saint-Gobain. "All telecoms" was the vote of one exasperated dealer. Growth areas The corporate sector of the Euro-MTN market has been given a huge vote of confidence by dealers. Eighty percent of houses believe that corporates are the next growth area. Yet though 26% of new signings this year have been corporates (compared to 22% in 1999) corporate issuance is a little sluggish. Last year 4.93% of non-syndicated debt was off private corporate Euro-MTN programmes, but this has only crept up to 5.19% this year. Dealers refuse to be pessimistic, however. "As the corporate sector takes off, more corporates will be happy about issuing regularly off their programmes rather than using them for one-off public deals," says one dealer. Not only do corporates get the thumbs up, so too do triple-B's. Last year only 28.57% of dealers believed that triple-B issuance would grow, but this year triple-B's get 51.52%of the vote. This is despite the fact that only 3.27% of non-syndicated debt has been issued by triple-B's in 2000. And Europe gets the most votes for growth region. Scandinavia, Greece, UK, France, Italy and eastern Europe all get a mention and overall Europe receives 79:f the votes. The US and non-Japan Asia only pick up 4ach and Japan receives 8 Investors Dealers were asked to predict how the investor base will change over the next 12 months. One says: "Investors are going to become more credit conscious and sophisticated in their search for yield premiums." But many dealers worry that an increasing focus on credit means a drop-off in structures. The dominance of plain vanilla was predicted by many houses. This is despite the fact that dealers report a slight increase in structured business. In 1999 41.7% of business was structured, according to the dealer survey. This year it is 43.32%. Dealers also think larger orders and more short-dated trades are future trends. But the vote is split as to whether European retail will become more prominent or not. However, dealers think that there will be a pick up in retail business from Japan. But regional banks in Japan are predicted to become less important. One house thinks that pension funds in Italy will be a driving force in the market. The market in 2000 It is perhaps not surprising that dealers had a good whine when they were asked what was the most disappointing aspect of the market this year. But the strength of their views was noticeable. "A quiet Easter," said one. Another was more forceful: "January and February were very, very quiet!" Other dealers pinpointed the problem. One dealer blamed "European investors," while another said, "If only European investors were buying more." The lack of both a thriving structured market and a credit market were highlighted as serious concerns. "Lots of public deals and poor mark-to-market performance has distracted investors from the private market," says a trader. And a Japanese house remarked on another important issue: "The decrease of investor demand in Japan due to the introduction of the mark-to-market accounting rule is disappointing." Though it was often investors who got the blame for the volatile market, issuers also came in for some criticism. "Issuers have been too opportunistic this year," says one dealer.

NEC Corporation has launched a jumbo convertible bond in the Japanese domestic market, raising ¥100bn of zero coupon funds with an issue that enjoyed tremendous demand from domestic and international investors. Daiwa SB Capital Markets was lead manager for the transaction and sold 30% of the paper into the Euromarket. The deal was more than 10 times covered, according to Koki Yakato, deputy general manager at Daiwa SBCM in Tokyo.

DEUTSCHE BANK has signaled its commitment to its M&A practice by taking Bob Cotter from Salomon Smith Barney in New York, Cotter was co-head of M&A at Salomon but will be head of Deutsche's global M&A practice. Deutsche Bank's M&A practice ranked 10th in the world last year in terms of announced mergers worldwide by dollar volume, but has dropped to 18th this year.

UK corporate, Diageo added a $1.5 billion US MTN facility to its financing arsenal on October 20, to access domestic retail investors (see MTNWeek, issue 153). Many European borrowers are keen to follow Diageo but this is a sector closely guarded by US issuers. And American buyers who traditionally look for top names could prove hard to please. Yet Diageo's $300 million fixed rate 10-year inaugural US MTN trade was announced within a week of signing. And the pricing level achieved was tight at 110 basis points over treasuries. Mike Turnbull, executive director and head of UK corporate coverage at Morgan Stanley Dean Witter (MSDW), the US programme arranger, says: "The issuer acted responsibly to ensure it introduced paper that investors wanted. But it was still able to achieve pricing well inside that of other single-A rated borrowers." Andrew Moorfield, director, corporate finance and capital markets at Diageo, has clear aims for the programme. He says: "Diageo wanted to increase the liquidity of its secondary paper and access second and third tier investors in the US. We hoped in signing the US facility we could diversify the funding base and our maturity profile, for example we had big gaps in the 2002 and 2003 maturities." But some dealers are sceptical as to whether US MTNs are a good option for non-US borrowers. One dealer says: "Many banks are not emphasising the yankee product to issuers, since rapid growth in the Euromarket is offering more arbitrage opportunities." And Ron Ross, director, debt capital markets at Merrill Lynch, says: "The advantage of issuing in Europe for European corporates is a lower fee structure than in the US." Diageo wanted a three- or four-year note for its inaugural, but found that the 10-year deal offered a better price and was what buyers wanted. Paper was sold to 40 retail investor accounts and half of the orders were for under $5 million, with one for $300,000. There are relatively few non-US borrowers with SEC-registered US MTN programmes, although it is steadily increasing. Northern Rock signed a $1 billion facility in May this year. Establishing a name in the market is the main concern for newcomers. Moorfield, at Diageo, believes the MTN trade was piggy-backed on the strength of Diageo's yankee and global bond issues which raised its profile in the US. He says: "There is a yankee premium for non-US borrowers but due to the frequency of Diageo's presence in the market and the success of its global bonds, the premium was diluted. European issuers should be encouraged to look at the market, which is deep and liquid - the premium could be worth it." Diageo was formed in December 1997 when Grand Metropolitan merged with Guinness. Among its many tasty products are Haagan Daz, Smirnoff and Burger King. Diageo, translated from Latin and Greek as everyday all around the world is an apt name, considering its extensive product distribution. Diageo's name may not be universally known in the US but Ross, at Merrill Lynch, believes its success in America is down to its brands. He says: "Diageo's main objective is to tap the retail investor base using the appeal of its well-recognised brand names." Despite being UK-based, Diageo's funding requirement is in dollars since the majority of its business is in the US. Moorfield, at Diageo, says that if the US facility meets the aim of investor diversification, then the ceiling will be raised and it will increasingly be used for funding instead of Diageo's $5 billion Euro-MTN programme. Yet Matthew Antoniou, debt capital markets manager at Diageo, emphasises this does not devalue the Euro-MTN shelf. He says: "Diageo's intention is not to be frequently accessing the market but to be a steady issuer off the Euro-MTN programme. It will continue to do relatively small trades and seek out discreet private placements, but always with aggressive pricing." Diageo has not ruled out trading in the Euromarket before the close of 1999. And Moorfield, at Diageo, says a $50 million US MTN will be issued in the next few weeks. Diageo sells itself as a flexible and sophisticated issuer, keen to meet investors' needs, which is crucial in the competitive US market. Antoniou, at Diageo, says: "Diageo is open to all structure ideas and will consider any type of note as long as the price is good. We can give an answer to our dealers within 24 hours." But Moorfield, at Diageo, adds: "Diageo is cash-rich and is not prepared to pay a premium to do a particular structure or lengthy maturity." Diageo had good demand for its first US MTN but if it issues more frequently it may have to compromise on levels, especially for short-dated deals. Yet Bob Bonefide, head of MTN and CP origination at MSDW in New York, says: "The US market is so large, deep and diverse it would be impossible for Diageo to reach saturation point. Even for GMAC and GE Capital, issuing billions of dollars-worth of debt, good pricing can still be achieved." He expects more European issuers will sign US programmes in 2000. Turnbull, at MSDW, says Diageo is equipped with a variety of funding vehicles in order to have flexiblity. He says: "Diageo is always reasonable in its expectations. Markets go in cycles and Diageo's pragmatic approach to funding means it won't dump money into a market that doesn't want it."

DLJ has hired a managing director from Salomon Smith Barney to head up its European telecoms and media group. David Diwik will start work at the London office in September. He will report to Joel Cohen, CEO of DLJ's European investment banking group, who is currently still based in New York.

Yesterday (Thursday), dollar swaps were trading very close to where they had been a week earlier. The 10 year mid-market was around 121bp over the 6.5% Treasury due 2010, while the five year was at 102bp over the 6.75% Treasury due May 2005. The 30 year swap was at 138.5bp over the long bond. Swap rates, meanwhile, are appreciably tighter. Yesterday, two year swaps were quoted as 6.98%-7%, against 7.1-7.12% at the beginning of the week. Five and 10 year rates were also about 10bp tighter, at 7.05-7.08% and 7.14-7.16% respectively.

Dow Chemical Company (Dow) has signed a $1 billion Euro-CP facility with Deutsche Bank as arranger. The dealers are Deutsche Bank and Citibank. It also has a $500 million Euro-MTN programme and two US CP facilities but has not issued off any of them to date. Dow is the second biggest US chemical company after DuPont and is in the process of buying its rival Union Carbide. The issuer's short-term ratings are P-1 from Moody's and A-1 from Standard & Poor's.

Competition in the Dutch housing sector is hotting up. When WSW signs its unlimited Euro-MTN programme in September (see MTNWeek issue 136) it will be the third debt facility for housing associations in the Netherlands. Dutch Housing Association Finance (DuHAF) signed a euro1 billion Euro-MTN facility earlier in the year, and in a crowded market is determined to stand out. But it has a battle on its hands. Valentijn Thijssen is the senior consultant in the treasury advisory group at DuHAF Holdings. He was pleased with the Euribor flat rate achieved in the inaugural trade, in June, and is optimistic that the next issue will be even tighter. He says: "It was not too sharp to scare investors but it was a good level compared with the local private placement market. It was important to show we can compete with these levels. And we are keen to prove that we can become cheaper." But Waarborgfonds Sociale Woningbouw (WSW) is chasing close behind. This programme is co-arranged by ABN Amro and Bank Nederlandse Gemeenten (BNG). WSW was founded in 1984 as a guarantee fund for Dutch housing associations. It guarantees the debt of 637 associations - 90% of the total number, including 13 within DuHAF's group. But while associations under WSW's facility will issue in their own name, notes from DuHAF's programme will be in DuHAF's name. A spokesman, at WSW, says: "Investors may view WSW as being in competition with DuHAF, because both entities will have Euro-MTN programmes. But we think the programmes complement each other, and that investors have a wider choice." Yet, Thijssen, at DuHAF, believes DuHAF's programme offers a superior service. He says: "One of our roles is informing the housing associations on how the market works. An association on its own would have to invest a lot of time to acquire the same level of knowledge that we provide. The BNG/ABN Amro programme is very different from our approach, because there is no central manager and information provider." Colonnade, the ING Barings arranged pass-through securities programme, offers further competition as a funding vehicle for housing associations. The facility was signed in April 1998, and two public issues of Fls325 million ($155 million) and $75 million were launched in June and November. WSW guaranteed the notes. DuHAF's programme is jointly arranged by Morgan Stanley Dean Witter (MSDW) and Rabobank International. Deborah Loades, Euro-MTN product manager, at MSDW, says: "There are three different methods for the housing associations to access the market. We believe the DuHAF route is the most attractive since it is the only one which combines the ability to issue opportunistically and strategically through a large, liquid issuing entity." In the early 1990s the central government privatized the social housing association system in the Netherlands. Until Colonnade and DuHAF signed facilities to issue in the Euromarket, the majority of funding for the associations had been met through the domestic private market. WSW has triple-A ratings from Moody's and Standard & Poor's. The same rating is applied to notes issued by the housing associations WSW guarantees, including those in DuHAF's group. A WSW spokesman says: "WSW is the safety net for investors. Investors don't have to worry about risk, or which housing association is more solvent than another, we take the burden." But, because WSW secures notes issued by so many associations, some more credit-worthy than others, it will not take the risk of complicated structures, swaps, or short maturities. DuHAF is restricted to issue only in guilders and euros and only notes longer than two years. Although it plans to negotiate better terms with WSW. It is increasingly important that DuHAF can offer flexible funding. Consolidation among housing associations is occurring rapidly and as the sector contracts and becomes more competitive DuHAF is keen to attract more associations. DuHAF only has its two arrangers as dealers but is open to reverse enquiry. DuHAF is owned by housing association shareholders so when it comes to closing a deal response times may be slow. Thijssen, at DuHAF, says: "If I have to round up lots of housing associations for a trade it takes more preparation and can be longer in the sorting out process." Although he goes on to say that if just one association is involved the turnaround could be within an hour. Eddy Villiers, head of new issues, Rabobank International, says: "The structure of DuHAF's programme is not the sort that will enable trades to come to market within a day. But the programme is for strategic not opportunistic issuance. The housing associations have specific funding needs and we have time to prepare and match investors' demands to those of the issuer." WSW has been delayed in signing its programme because there are several parties involved. But Douglas Grobbe, head of origination, Benelux, at ABN Amro, does not consider WSW will have any problems when it comes to trading. He says: "The housing associations are very used to the market. They have been issuing in the domestic market for many years and are used to the process. The only difference is that issuance comes off the Euro-MTN programme. It offers standardization for issuers and makes them more visible in the Euromarket." As competition in the sector increases it is possible that DuHAF, Colonnade and WSW will be forced to merge facilities to make issuance more efficient. However, Villiers, at Rabobank, thinks DuHAF's facility will be active and compete in its own right. He draws the comparison with other umbrella programmes. He says: "The bundling of the funding for municipalities or housing associations in this way will be extremely successful. It allows smaller entities to get greater status in the market and achieve better levels." And Thijssen, at DuHAF, shrugs off the challenge of competition. He says: "Apart from our zero solvency and our triple-A credit rating, DuHAF is an acknowledged and respected name. We can facilitate individual needs with small structured trades or with larger bonds, which we then split up, to get a better level for the issuers."

Croatia Lead arrangers Bayerische Landesbank (books), Citibank (books), Commerzbank (co-ordinator, books), Dai-Ichi Kangyo Bank (facility agent) and WestLB (documentation) have signed the Eu150m term credit facility for Zagrebacka banka dd.

Electrolux has redenominated its $1 billion global MTN programme to euro1 billion ($941.44 million). Credit Suisse First Boston and JP Morgan have been dropped as dealers while ABN Amro and Morgan Stanley Dean Witter have been added, alongside Salomon Smith Barney (see MTNWeek, issue 190)

Ecuador appears to have beaten investors into submission with its debt restructuring proposal to swap $6.65bn in defaulted Bradys bonds and Eurobonds for $3.95bn of new 12 and 30 year global bonds. After roadshows in New York and London this week, Ecuador was on track to attain the 85% investor approval it needs for the restructuring to go ahead. Ecuador's success, however, was more the result of coercion than negotiation. If 50% plus one of the current bondholders vote in favour of the exchange, then that will result in the dissolution of certain terms on the current bonds, making it a worse bet for bondholders who do not vote in favour.

Mexico ? Grupo Televisa SA