news and analysis of the global credit derivatives market
Credi
I June 2.006
Issue S8
Deerfield leads race to
launch credit DPC page 3
New industry takes shape
Unwind fears spook
loan-only market page 5
New docs set to boost volumes
ACA plans IPO page 6
CDO manager eyes ABX push
Dealers push through
CDS of CDO docs page 7
Isda resolves write-down squabble
Asia logs first~to-
default first page 8
Regional high-yield market grows
Isda warns ruling could
chill CDS market page /0
Tradebbdy lobbies appeal court
Market awaits surge of
loan synthetics page /5
Dealersplarl new trades
WsQ·launcheslong/
short synthetic page /6
Manager targets LBO names
Deerfield hires .from
Henderson page 29
CDO manager opens in London
Watching the Fed page 3/
End view: Citigroup Fixed
Income Alternatives Group
Omicron builds CDO
team page 32
ExcUniqagroupnabs CDO
Dealers abandon net
physical settlement
The credit derivative market's grand
project to introduce net physical set-
tlement of credit events appears to
lie in tatters this month.
Instead, Isda is preparing a new
expanded version of the cash set-
tlement mechanism that is already
in use. This comes after attempts to
draft documentation for net physical
settlement hit a brick wall.
The about-turn will result in
market order-style cash settlement
auctions being brought under the
2003 credit derivatives definitions.
When that happens, it will become
mandatory to settle credit events on
all new contracts using the auction
concept first developed to settle the
Collins & Aikman default.
Says Jim Hill, an executive
director in the structured credit
products group at Morgan Stanley
in New York: "We believe there is
a growing consensus among deal-
ers and clients and Isda that if the
[expanded] cash settlement auction
process works, there is no reason to
go to net physical settlement. It is
overly cumbersome, can force people
into phYSical settlement that don't
want it, and requires a long time to
put in place. The cash settlement
process is better on all three counts."
Adds Hill: "The new process,
once finished, will be mandatory
for all new trades including index,
tranche index and single-name
CDS. For existing trades, we will
have to persuade counterparties to
opt into the process."
During the trial period, market
participants will have the choice of
whether they opt for the auctions or
not. Isda says that the protocol will
be used on that basis for at least one
or two credit events.
An Isda spokesperson says
that the association is committed
ux
to focusing on the solution that the
market wants. But one senior credit
derivatives trader sums up the pic-
ture more forcefully: "Net physical
settlement is dead," he says.
The net system is regarded
as a conceptually elegant solution
to the problem of how to settle
credit events without creating a self-
defeating squeeze in the underling
bonds. But it is not a solution that
has stood up well to harsh scrutiny.
The process makes use of a cash
settlement auction, but only after
a complex netting procedure has
taken place to produce the physical
settlement portion.
Morgan Stanley has been
among the more vocal supporters of
an expanded cash settlement auc-
tion, according to bankers involved
in the regular weekly conference
calls on credit fixings. JP Morgan
and Deutsche Bank are reported
to have argued most strongly for
net physical settlement. However,
according to dealers, it was when
banks began hearing back from
their hedge fund clients that major
cracks started to appear in the net
physical settlement plan.
The central depository - which
matching and settlement house
DTCC has been building inde-
pendently of the net physical set-
tlement initiative - is a basic plank
of the mechanism. But serious
concerns emerged over how long it
would take to build. In the mean-
time, many funds have become im-
patient that single-name trades are
still excluded from credit event fix-
ings. They say it introduces basis risk
to their index-versus-single-name
positions.
Dealers say the new protocol
should be ready by September or
October. EVAN HAGGER
 Credit
FISHKNIFE FIS
Keep it simp
Around six years ago - when
nobody was very keen to invest in
credit default swaps - insurance
companies were the great hope of
the credit derivatives market. But
at the time people feared that the
different view of risk and docu-
mentation in these two spheres of
the financial universe would lead to
disputes. Will they pay up was the
question the bankers asked about
the insurers that were taking on
credit risk for their underwriting
books. Will they try to dump their
bad loans on us based on insider in-
formation, was the insurers' big fear.
SG must wish it had never trad-
ed a credit default swap with one
insurance company, Aon (see page
10). But in this case the usual bank-
insurer relationship is reversed. SG
was the one crying foul after Aon,
the buyer of protection, triggered a
default on a contract referencing the
Republic of Philippines.
Now, as anyone vaguely famil-
iar with emerging market credit
knows, the Philippines has not de-
faulted in recent times. So the court
case that has recently come to light
seems to confirm the old suspicion
that insurance companies don't quite
get the point of credit derivatives.
What is more surprising is that
the company succeeded in persuad-
ing aNew York court that it could
treat a contract written on senior
unsecured government debt as an
insurance policy for a Philippine
insurance agency surety bond.
How, to paraphrase Isda's sub-
mission to the appeal court, could
the original judge fail to notice that
the credit default swap contract
spells out the need for the protection
buyer to deliver an eligible bond?
In fact, there is a very good rea-
son that a court could get confused.
The confirms and definitions used
in the credit derivatives market are
utterly bewildering to any outsider.
And Isda, as the body that brings
together dealers and users to create
these contracts, bears a large share
of the blame for this state of affairs.
It is true that concepts such as
'borrowed money', 'not contingent'
and 'deliverable obligation char-
2 I June 2006
acteristics' have precise meanings.
But most people outside thw magic
circle of derivative lawyers are clue-
less about them. Many a trader has
successfully traded credit derivatives
without really understanding the
difference between reference obliga-
tions and deliverable obligations.
And credit derivative docu-
mentation seems to be getting more Credi~ux
complicated. Credit default swaps is published monthly by
on asset-backed securities, for ex- Cl"edi~ux Ltd,
ample, introduce a barrage of new
concepts, such as 'interest shortfall
63 ClerkenwellRoad,
reimbursement payment amount' LondonECIM 5NP, UK
and 'additional fixed payment event'. +44(0)2072539510
Derivative lawyers argue that mail@creditflux.com
the fiendish complexity of credit www.creditflux.com
derivative documentation simply
reflects the complex nature of the
underlying risks. But this is not
entirely true. Plenty of terms are un-
necessarily confusing.
Take the provisions for con-
stant maturity credit default swaps
published last year, for example. In
these trades, the protection buyer is
known as the fixed rate payer (even
though payments in these trades
float in line with current spreads),
and the protection seller (the coun-
terparty who actually receives the
floating payments) is known as the
floating rate payer.
Or consider the credit event the
market knows as modified restruc-
turing. In the documentation, this is
called 'restructuring with maturity
limitation and fully transferable
obligation'. Meanwhile, modified
modified restructuring is officially
called 'modified restructuring with
maturity limitation and condition-
ally transferable obligation'.
The main reasons for these
drafting failures are that dealers
were unable to put aside their dif-
ferences and agree on simple terms,
and that traders quickly got bored
and left the final documentation
discussions to their legal colleagues.
That has left the credit deriva-
tives market with documentation
that is intimidating to potential new
users. That is bad. Even worse, it
could be unenforceable because the
courts can't understand what the
contract was meant to achieve.

NEWS.
Deerfield leads race to launch credit DPC
A new vehicle set up by Deerfield Capital Manage-
ment is widely expected to be the first of a wave of new
triple-A rated risk-taking entities in the credit market.
As many as a dozen of these so-called credit derivative
product companies are in the market, with many other
institutions and individuals still at an exploratory stage.
Structured credit specialists calculate that this in-
flux of capacity into the credit derivatives market could
have a marked impact on the spreads of certain assets.
"If only half of these planned companies make it out of
the starting gate this is going to dramatically change the
structured credit landscape," says one close observer of
the sector.
Although there are only two credit DPCs currently
in existence - four-year-old Primus Guaranty and
Athilon, which was set up at the end of 2004 - some of
the different characteristics of this new breed of compa-
nies are starting to emerge. There are a number of quite
different business strategies involved which, for the most
part, participants are willing to discuss only in private.
Each of these models has its benefits and drawbacks in
terms of expected returns, risk profile and likelihood of
achieving triple-A ratings.
One of the crucial distinctions is between credit
Credit
DPCs with a bank sponsor and those that rely entirely
on their capital models to preserve their rating. Among
those in the first category are a vehicle Deutsche Bank
is setting up headed by former MML Assurance and
Chubb Financial Products head Matthew Cooleen;
and Pallium Finance, a company being set up by Bank
ofMontreal and two former Merrill Lynch executives
Flavio Bartmann and Conrad Voldstad.
Deerfield's vehicle, which is thought to have already
received letters of intent to rate from at least one rating
agency, is an example of a standalone company, as is
Aladdin Credit Products, a vehicle being assembled by
CDO and hedge fund manager Aladdin Capital Man-
agement.
The Deerfield vehicle, Deerfield Financial Prod-
ucts, is one of the few credit DPCs in the pipeline that
follows Primus's model of investing in single-name
corporate credit default swaps. Officials involved in the
emerging sector point out that a single-name strategy
plays to the strengths of a fundamental credit specialist
such as Deerfield, which can make use of an established
team of credit analysts.
However, a disadvantage is that it adds operational
costs, since it requires more people working in research,
 Credit
NEWS
trade processing and risk manage-
ment. Privately owned Athilon,
which invests in tranches rather
than single names, is thought to op-
erate with a staff of only a handful
of people. Primus, by contrast, with
its $13 billion single-name portfolio
written on more than 500 names,
had a headcount of 35 at the end of
last year.
One of the most interesting
credit DPCs in the works is that
being worked on by Bear Stearns
Asset Management. This is thought
to be the only example of a DPC
that will invest in asset-backed se-
curities. Plans for this company are
thought to be well advanced, but it
is not expected to be among the first
of the current crop ofvehicles, since
its target investments make it harder
for the rating agencies to rate it.
Bear Stearns Asset Manage-
ment is understood to have hired
Jeremy Reifsnyder from monoline
insurance company CIFG to head
up the new venture, although the
company declines to confirm this.
Another new vehicle which is
reportedly close to launch is being
set up by two well-known struc-
tured credit bankers who recently
left the sell side. Walter Gontarek,
formerly credit products head at
RBC Capital Markets in London,
and Charles Colbourne, who until
last year was global head of credit
structuring at TD Securities in
London, are understood to have
teamed up to launch a company
known as Channel.
This standalone DPC is ex-
pected to target super-senior credit
tranches, though with somewhat
more conservative structural lev-
erage than seen in Athilon, the
only existing credit tranche DPC.
Sources who have seen Channel's
business plan say it aims to provide
good equity returns even if senior
spreads tighten significantly from
today's levels.
That is partly because of its
capital structure, which borrows the
two-tier capital note model recently
used in a number of structured
investment vehicles (SIVs). Like
Athilon, Channel should be able to
4 I lune 2006
benefit from a lighter operational
infrastructure than seen in single-
name DPCs such as Primus.
All of those involved in the sec-
tor acknowledge that the biggest
hurdle to bringing a new credit DPC
to market is not finding investors
but securing ratings. The companies
need to convince the rating agencies
not only that their capital models are
robust enough to support a triple-A
rating, but that they are staffed and
backed by people who are commit-
ted to maintaining a triple-A rating.
"They need to pass the sniff test,"
says one individual involved in the
sector, who believes that many of
the hedge fund managers currently
looking at the DPC space will fail
to convince rating agencies of their
long-term commitment.
One likely impact of the emer-
gence of the credit DPC sector is
to make it harder for new SIVs to
get up and running. Both SIVs and
DPCs are mainly buy-and-hold
investors that rely on capital models
for their top-tier ratings. One key
difference is that SIVs actively man-
age their liabilities as well as their
assets, using the short-term com-
mercial paper and repo markets for
funding.
Another difference is that when
a SIV hits trouble it can be forced
to unwind its portfolio of assets,
whereas ifDPCs are forced into a
wind-down state this means that
their portfolio is frozen until ma-
turity. As a result, investors in the
junior liabilities ofDPCs face less
risk oflosses because of a firesale
of assets than do SIV capital note
investors.
They are also less reliant on the
liquidity of the commercial paper
market, since DPCs issue term
funding. The business of arranging
DPCs' mezzanine and senior debt is
also becoming an increasingly com-
petitive one, with several CDO ar-
rangers seeing this as a logical area
to move into. Lehman Brothers
and Credit Suisse are among the
emerging leaders in this area, with
Credit Suisse thought to be arrang-
ing Deerfield Financial Products'
debt financing, Deutsche Bank sell-
Short form
Pioneer Investments
bUyS CDO manager
Specialist credit asset manager
Vanderbilt Capital Advisors
has sold itself to US mutual fund
manager Pioneer Investments,
which is in turn owned by Italian
bankUnicredito Italiano. Van-
derbilt, which was owned by its
employees, has around $13 billion
of assets under management and
is based in New York.
Vanderbilt is one of the biggest
managers of cashflow CDOs, with
around 10 deals under manage-
ment including the recent Burn-
ham Harbor CDO I. All its CDOs
are backed by asset-backed securi-
ties. According to Pioneer Invest-
ments, Vanderbilt has around $13
billion under management in total.
It will continue to operate asa
separate business within Pioneer
Investments, led by president
Emad Zikry; .
Mana.ger launchE!~
Ustedeqldty .
t.rallche··vehicle
ALondon-based·investment n
manager,Oc;eanCapital .••.•
Associates,. has launched the
latest example of a listed; c1osed_
ended•. vehicleJQrinvesting.in
junior. structuredfinance~tranches.
.The company, European Equity
Ttancht\Jncome,begantrading
on the London Stock EXchange at
the end ofApril after ra.isfr'lg€IOO
million of equity; Its focUs issinii"
lartoCheyne Capital's Queen:s
Walklnvestmentwhi(;h was .•
launcheda.hhe end of lastyea.r.
Correction:
TradeWeb
.
- ' - - - .
InthefMayissue ofc:rediyzux,
We· said·.tha'telectronic·trading
platf()rrTl,.~omson Trl1deVVeb.
offerS a.tradingtool.• calle(jSvyAP-
tracker,aspa~t:cifitscreditde- .
riY~t:iyesll1arketplace .•• lnfact,t~l:J.
tooJewasrec~ntliTepl.ace.~.gy;a ...•
rebrandedtrade .• ll)anag~lTIenttool
calledTRAD~tra.cker ..Applogles.

NEWS·
ing the debt of its own new vehicle
and Lehman Brothers working on
a number of credit DPC mandates
including the Bear Stearns Asset
~anagementcompan~
~ICHAEL PETERSON
Unwind standoff
threatens loan-only
market
The availability of cash unwind
prices has emerged as a key obstacle
to the development of the loan-only
credit default swaps market, accord-
ing to buy-side traders, as the credit
derivatives market gears up to trade
credit derivatives written on lever-
aged loans. Dealers are predicting
that a market in North America will
take off, following the introduction
of a standard template for trading
single names and that Isda docu-
As a Fund Manager, new regulations
entin
structured finance securities mean
I have to make sure ourCfholdings are
marked-to-market on a regular basis.
Standard & Poor's new viluation
'\
service
gives us timely and independent opinions
of prices, that help us reveal the value
of our portfo~io.
Structured Finance Secur,ities Valuation
mentation is due to be published
imminently. In Europe, trading
has been under way for some time,
despite reservations from hedge
funds about features designed to
encourage involvement by bank loan
portfolio managers.
Credit hedge funds on both side
of the Atlantic are hoping cash un-
winds will become a standard part
of trading.
Reversing a credit default swap
position can be done either by find-
ing a price for a cash unwind, or by
entering into an equal and opposite
trade. For active mark-to-market
investors such as hedge funds, cash
unwinds are usually the preferred
option, partly because they gener-
ally do not want to manage lots of
offsetting transactions.
However, the fact that lever-
aged loans are callable at any time,
and that they make mandatory pre-
Credit.
payments from excess cashflow and
asset sales, raises obvious challenges
for calculating cash unwinds.
Hedge funds that are trading
leveraged loan credit derivatives in
the European market confirm that
cash unwind prices are generally not
available there. "Dealers will not
provide you with an unwind price,
only an offsetting transaction," says
a long-short portfolio manager. "The
contract is callable, so dealers don't
know how long the transaction is
going to last. They don't really want
to give you a valuation."
There is also uncertainty over
whether unwind prices will be read-
ily available in the North American
market.
Unlike the standard way of
trading leveraged loan single-name
default swaps in Europe, the North
American contract is non-callable.
However, cash unwind calculations
 Credit
NEWS
are still problematic, due to the high
prepayment rates associated with
leveraged loans. If the loan amounts
are reduced to zero, the credit de-
rivative contract is terminated.
North American traders say
that the risk of that happening is
lower than in Europe, as the credit
derivative contract trades on a class
of assets. In the European market,
trading has gravitated towards a
single reference obligation-only con-
tract. However, questions remain
over the suitability ofloan credit
derivatives for cash unwinds, even
in the US.
Says Jeff Kushner, head of exe-
cution at credit investment manage-
ment firm, BlueMountain Capital
Management: "Calculating the
unwind, you need to calculate what
the curve looks like, the recovery
value and the duration of the trade.
But there's the question of what the
duration is. In North America there
is somewhat less uncertainty, as the
loan credit default swap will trade
on a class of assets, and therefore is
less likely to be early terminated."
One view is that North Ameri-
can dealers will move towards pro-
viding an unwind price based on the
maturity of the asset.
Meanwhile, in Europe, the
relationship between trading on
spread and trading on price remains
murky, according to some hedge
fund traders, due to the strong in-
fluence of bank loan portfolio man-
agers on the market.
"The thrust is to make it as
much as possible so that every con-
tract is a par contract," says a hedge
fund portfolio manager. "That is for
accrual-accounted clients. Dealers
don't want to trade on price in case
the banks that they have persuaded
into the contract [because it is a
spread-based net interest expense
item] change their minds."
Booking loan protection buy-
ing through net interest expense
accounts requires cashflow recogni-
tion, but not marking to market
- which is anathema for banks
booking loans at par.
However, despite the fact that
some hedge funds offer a negative
6 I June 2006
assessment of European loan default
swaps - hedge funds also dislike the
fact that the contracts are callable
- they appear to be trading quite
actively.
Notes one hedge fund trader:
"When European loan CDS first
started trading, spreads traded ap-
proximately on top of the spreads
of the underlying loans. CDS now
trades at least 50bp tighter. That
suggests that the key people already
visible in the market in the pric-
ing of the loan CDS are the hedge
funds and people taking risk."
He adds: "We just want to
trade. Callability isn't great but we'll
cope with it, the same way that we
cope with it in the high-yield bond
market. The people who worry about
it almost certainly already have call-
able assets in their portfolio."
EUANHAGGER
ACA plans IPO
ACA Capital, the single-A rated
monoline and CDO asset manager,
has filed a prospectus for its IPO,
an offering that would mark a new
chapter in the eventful life of the
structured credit specialist. The
New York-headquartered company
invests in and manages CDOs and
had total credit exposure of $21.5
billion at the end oflast year. It has
a total of $9.9 billion of third-party
funds under management.
The filing sheds light on many
details of the company's business.
It shows that ACA's profits are
split evenly between its three main
business lines: CDO management;
structured credit - that is, the busi-
ness of investing in synthetic CDO
tranches and other credit deriva-
tives; and municipal finance, which
involves providing wraps for munic-
ipal bonds. In 2005, the three units
contributed $15.9 million, $16.7
million and $13.6 million of income
before tax respectively.
In total, the company made
profits of $43.9 million last year
from revenues of $330.6 million.
The company currently has nine
cashflow and five synthetic CDOs
under management, mostly backed
by asset-backed securities and cor-
porate risk. Last year it launched its
first deal backed by high-yield loans.
ACA is mainly a buy-and-hold
investor in credit derivatives, and
typically sells protection on tranches
rated triple A. Of a total of 85 deals
it has entered into since the business
started in 2002, 76 remain out-
standing, and the portfolio totalled
$14.6 billion at the end of2005 in
terms of swap notional.
According to the prospectus,
ACA has begun to move down the
credit curve since 2005, taking on
its first credit default swaps rated
below triple A. The company says
it expects to expand the structured
credit business by moving into
structured finance risk, such as the
ABX indices and credit default
swaps on individual mortgage-
backed securities.
The company began life in 1997
as American Capital Access, at-
tempting to carve out a niche as a
single-A rated financial guarantor.
(Most monolines, by contrast, are
rated triple A.) In 2000, the com-
pany was forced to restructure and
recapitalise, bringing in Michael
Satz as chief executive from mono-
line reinsurer Capital Re. Satz hired
a new team mainly from Prudential
Securities, including chief operat-
ing officer Maryam Muessel, and
the company switched its focus to
managing CDOs and investing in
credit derivatives.
In 2004 ACA underwent a
second period of convulsion after
rating agencies put pressure on the
company to increase its capital base.
It hired current chief executive
Alan Roseman to replace Satz, and
changed its name from American
Capital Access to ACA Capital.
At around the same time, it raised
$170 million of new venture capital,
chiefly from Bear Stearns which
became the company's biggest
shareholder with a 34% stake.
Last October the company lost
a court case brought by Muessel,
who left at the same time as Satz to
become chief investment officer at
Fortis Investments. She claimed
$3.2 million in severance pay from

NEWS
the company on the grounds of
constructive dismissal. ACA Capital
says it is appealing against the judg-
ment by the New York state supreme
court. MP
Dealers push through
CDS of CDO docs
The market is set to unveil standard
pay-as-you-go documentation for
credit default swaps referencing
cashflow CDOs. Isda confirms it
is moving ahead with the project,
in conjunction with a committee
consisting of a broad mix of coun-
terparties.
Says Kimberly Summe, Isda's
general counsel: "We should have
a draft out in the last week of May
and my hope is that it will gener-
ally reflect the consensus views of
the membership. We have had good
member comments. If people seem
supportive of the way we have put
WS
their comments into writing, then
I think we can move ahead, after a
further five business day comment
period, to publication."
Traders say that the documen-
tation discussions stalled briefly
when some firms called for language
clarifications and, more funda-
mentally, disputed the inclusion of
a clause allowing 'implied write-
down' - a floating payment event
triggered when a calculation agent
determines that the reference obli-
gation is under-collateralised. How-
ever, Isda says that the revised draft
takes these views into account.
"Whether or not to include
implied write-down was really the
issue that had most focus in our
conversations," says Summe. "We
didn't have a consensus for taking
it out or hardwiring it in, so we did
the most prudent thing by leaving
it up to the counterparties to make
that decision.
Credit
"It is in the nature of compro-
mise - there will be dealers who
will want to include implied write-
down and those who do not want to
include it, and they will be able to
negotiate that on a counterparty by
counterparty basis."
According to one trader, the
majority of committee members
were in favour of including the 'im-
plied write-down' clause. He says
that discussions have been lively.
"Investors are very vocally saying
what they want," he says.
Says Todd Kushman, manag-
ing director and product specialist
for structured finance derivatives at
Bear Stearns in New York: "People
want to trade something that com-
pensates for losses as they occur.
From an accounting perspective you
have an impaired security. Implied
write-down recognises that impair-
ment and, ifyou are taking that
impairment write-down on your
 Credit
NEWS
accounting books, it is reasonable
that you actually pay someone for
that protection of a loss."
Traders say that standardisation
should boost interest in cashflow
CDO credit default swaps.
Says Fred Horton, head of the
structured finance group at New
York-based credit specialist GSC
Partners: "It is very much ofinter-
est to us. We have a substantial on-
going need to put that kind of risk
on synthetically. Standardised Isda
docs take away the bilateral nature
of a trade and make it multilateral.
If you trade on a unique set of docs
you can only really transact with
the one guy that has agreed to those
unique docs."
esc manages alternative invest-
ment strategies in control distressed
debt, corporate credit, European mez-
zanine and structured finance.
Adds Kushman at Bear Stearns:
"You will have more transparency in
pricing, because people are going to
be able to execute on a regular basis,
and more tiering of managers. A
manager's deal will be able to price
more than just in the primary and
the rare occasions it trades in the sec-
ondary market. You'll also have the
growth of CDOs squared and we'll
see people doing basis trades between
CDOs and single names." DA
Manager wins CDO
takeover mandate
Cambridge Place Investment
Management, a specialist manager
of asset-backed securities based in
London, is believed to have secured
investor approval to take over two
existing CDOs of ABS from Aus-
trian firm Uniqa.
The deals, Stanton MBS I and
Stanton ABS I, were launched in
2004 and 2005 respectively. Inves-
tors in these two deals and a third
deal, Stanton CDO I, triggered
key-man clauses to dismiss Uniqa
as manager when portfolio manager
Marcus Klug left the firm last year.
Seven investment managers
including Uniqa put their names
forward to take over management of
the two deals. Officials at Cambridge
8 I June 2006
Place decline to comment on their
success in winning the mandates.
It is understood that while the
transfer of the management man-
date has been agreed, final paper-
work has not yet been completed.
An official for the trustee on the
two deals, ABN Amro Trustees,
declines to comment ahead of any
official announcement.
Meanwhile, management of
the third ofUniqa's CDOs, Stanton
CDO I, is set to be transferred to
Omicron Investment Manage-
ment, the new firm set up by Klug
and his team (see page 32).
Cambridge Place was set up
in 2002 and manages a number of
vehicles focusing mainly on asset-
backed securities. These include five
CDOs of high grade ABS, Camber
1 through to Camber 5, and a hedge
fund, CPIM Structured Credit
Fund. MP
Asia logs high-yield
first-to-default first
Traders in Asia say that the market
has traded its first example of an
inter-dealer first-to-default (FTD)
basket of high-yield names. Details
of the counterparties and basket
names were not forthcoming as
Credi~ux went to press. How-
ever, it is thought that the basket
may include such credits as Noble
Group and Vedanta, both of which
saw significant volumes in mid-May.
Says one Hong Kong-based
trader: "There were a few quotes
in high-yield FTDs and one went
through, the first time we've seen
that in the street. It traded at around
74% spread."
"There were a lot of two-way
quotes on a few high-yield names,"
adds another trader. "That's the first
time we've seen that for a while."
First-to-default baskets are
popular in Asia, where a secondary
structured credit market is rela-
tively undeveloped. Traditionally,
however, FTDs tend to reference
emerging market sovereign names,
which are the most liquidly traded
Asian credits. DA
Short form
Software vendor
links to DTCC
Omgeo has announced it is link-
ing its latest offering, Omgeo
Connect, to DTCC's Deriv/SERV
platform, which matches and
confirms OTC trades. The link,
intended to go live before the end
of the second quarter of 2006, will
allow investment managers across
asset classes to integrate domestic
and cross-border trade processing
at a single point of access.
Omgeo Connect allows invest-
ment managers and outsourcers
to interact withOmgeo services
and other third-party post-trade
solutions. According to the firm,
it enables streamlined trade and
settlement management of various
asset classes via an ASP applica-
tion, reducing the need to main-
tain. multiple systems and services.
In Iinkingto DTCC~Omgeo
says Connect will extend its
XML message specification to
capture data relevanttoOTC
derivatives, transform this data
into industry-standard FpMLmes-
sages and route these mess.agesto
Deriv/SERV via an MQinterface.
Post"matching, Omgeoc:onnect
will·receive.statusmessagesfrom
Deriv/SERV, transform thesemes-
sages and pass them backfothe
investment.·manager.·
There are a number of errors in
the portfolio credit swap league
tables printed· inthe .1 May issue
of Credi~ux. Theseerrorsaf-
fect the industry totals. for 'name"
referenced' trades, but .dono1:
affect·thetotatforanyindividual
banks. As a result Qfadata input-
tingerror,wealsounderstated
lehm an..l5 r Octhers'.totalofin-.
dex.tranches.Bothicorrect.tables
arenOwsh()wrJ o~thE! website..
. The correct figuresare shown
on .our website atwww.creditflUlc
col11/publicltables.

NEWS
Isda firms up
successor plans
An overhaul of successor language
- the mechanism governing credit
default swap migration to new refer-
ence entities following debt-related
corporate actions - has stepped up
a gear. Isda confirms that it is work-
ing on new documentation, for use
globally. "We do intend to publish
some documentation that updates the
2003 credit derivatives definitions
with new successor language," says a
spokesperson for the association.
Recent leveraged M&A deals
and capital reorganisations have
thrown up examples where successor
language has failed to provide for
the migration of credit protection.
Indeed, successor shortcomings,
from a protection buyer's perspec-
tive, contributed to the massive
move tighter in credit spreads, start-
ing in mid-March.
The short squeeze, in the Eu-
ropean market at least, coincided
with panic in relation to a capital
reorganisation at UK pest control
company Rentokil. Investors woke
up to the fact that credit protection
on the old Rentokil reference entity
would shortly be worthless, once
bond issues at that point in the com-
pany structure matured.
Together with Rentokil, a long
line of M&A deals and corporate
actions have produced successor
'hot spots' in Europe. However, the
North American market has also
been struggling with successor lan-
guage, for example in relation to car
rental firm Hertz, and travel com-
pany Cendant.
Problems arise because the suc-
cessor mechanism only covers the
transfer of existing debt to new ref-
erence entities. That does not cater
for situations like bond buybacks, or
where debt matures and new debt is
issued in a new entity isolated from
the previous borrower.
Although Isda is attempting
to grasp the nettle, there is com-
mon agreement that replacement
language covering a broader range
of corporate actions will be difficult
to achieve.
I June 2006
Notes a London-based in-house
lawyer who is working on the prob-
lem: "At least currently we have a
transparent mechanism. It may not
always provide the right result for
the protection buyer but it does pro-
vide certainty.
"The task is to be explicit about
further scenarios, even though it
will be impossible to deal with
all situations, and to make the
approach sufficiently generic." EH
Codefarm launches
online version of
structuring tool
Codefarm, which provides CDO
structuring software, has become
the latest vendor in the credit
derivatives space to make its product
available as an online service. Last
month, the UK-based company
launched Galapagos Structurer
Online, a product consisting of a
desktop application which connects
to an off-site computer grid operated
by Codefarm.
The firm says five banks are
already using the standalone version
of Galapagos Structurer, including
several leading issuers of synthetic
CDO. But the online service, which
has been trialled with four banks,
will make it possible for less fre-
quent issuers of synthetic CDOs to
make use of the product.
Codefarm managing director
Jeremy Mabbitt says the cost of
subscribing to the online service
will be significantly less than the
low to mid six-figure sum charged
each year for the standalone version
of the software. "The upfront cost
is significantly less," he says. "And
for clients with low deal volumes,
the cost is less overall. However, the
standalone product remains the best
solution for high-volume issuers."
The company claims the soft-
ware can save resources and improve
breakeven spreads for CDO issuers.
It automates the process of struc-
turing a synthetic CDO, including
choosing the optimal names for the
portfolio based on the investor's re-
quirements.
However, like other kinds of
Credit.
derivative software, the product
consumes a large amount of com-
puting resources. For this reason,
several vendors are switching to
an 'application service provider'
model, running the product online
rather than installing it onto the
client's own systems. Pricing ven-
dor Cn02, for example, recently
began to offer its CDO Sheet tool
through Sun Grid, the computing-
on-demand facility provided by Sun
Microsystems.
A key benefit of the ASP model
is that customers' IT departments
no longer need to be much involved
in installing the software. Mabbitt
says the online version of Codefarm's
software can be up and running in a
matter of hours, rather than weeks
for the locally installed version.
Codefarm Software, which em-
ploys a total of 15 people and is based
in Brighton, launched the Galapagos
product around two years ago. It
recently incorporated Reoch Credit
Partners' structured credit pricing
model into the application. MP
Broker eyes credit
derivatives fund for
Israeli corporates
A Tel Aviv firm plans to set up what
promises to be the first credit deriva-
tive fund targeted at Israeli institu-
tional investors. Contact Israel, a
broker and consultant, aims to have
the Cayman-domiciled fund up and
running around August. This, along
with a private equity fund, will be
the firm's first asset management
venture, although it is no stranger to
the credit derivatives market.
The firm advises mainly corpo-
rates and public sector organisations
on investments, and has been focus-
ing on credit derivatives for some
time.
Its clients, including large
Israeli corporates such as BMW
Israeli and Egged, a large coopera-
tive society, typically trade credit
derivatives in unfunded format us-
ing standard Isda documentation.
Trades the company has steered
its clients towards include nth-to-
default baskets on international cor-
9
 Credit
NEWSNE
porate names. However, a current
focus is second-to-default baskets
comprising a mixture of asset-
backed securities and Israeli banks.
"We are recommending trades refer-
encing asset-backed securities to our
clients because of the high recovery
rates for ABS and also because there
is a lot of market data available on
these securities," says Ofer Abar-
banel, Contact Israel's founder.
"That makes it possible to get good
pricing and analysis."
A typical trade might be a sec-
ond-to-default basket on up to 12
names, mostly US credit card or car
lease-backed securities, along with
a couple ofIsraeli credit card assets
and financial names such as Bank
Hapoalim or Bank Leumi. Such
a trade might pay around 70 basis
points.
"This enables our clients to ac-
cess a transaction with double-A
to triple-A risk with high expected
recovery rates, and with returns
enhanced by the inclusion of the
Israeli banks," says Abarbanel. "The
Israeli banks are triple-B names but
it is risk that our clients are usually
very comfortable with."
The firm has also facilitated
trades involving equity default
swaps, typically arbitraging between
EDS and equity warrants. Last year
it traded $120 million on behalf of
clients and expects to top $200 mil-
lion this year.
The new fund, the Contact Cli-
ents Central Providence Fund, will
include similar trade ideas along
with other fixed income investments
and should be over $200 million
in notional size by the time it is
fully ramped up. The fund will be
benchmarked against the Lehman
Aggregate, which it aims to beat by
between 70bp and 120bp. Clients
will increase their initial capital
commitments depending on the
performance of the fund.
Abarbanel established Contact
Israel in 2000 after returning to his
native Israel after a career in finance
in Toronto. He worked for a large
Canadian bank, which he declines
to name, in its investment manage-
ment business. MP
10
Isda warns court
decision could 'chill'
CDS market
Isda has taken the unprecedented
step of throwing its weight behind
a counterparty involved in litigation
over a credit default swap contract.
Last month the trade body submit-
ted an 'amicus curiae' brief in sup-
port of SG's appeal over a court case
it lost in February.
Isda says it is concerned that
unless the judgment by the New
York Southern District Court is
overturned it could "have a chilling
effect on the financial markets and
would eliminate a significant means
by which banks, financial institu-
tions and corporations diversify
their credit risks".
In the original case US insur-
ance company Aon successfully sued
SG over a credit default swap ref-
erencing the Philippines which was
traded in 1999. Aon was the buyer
of protection and SG the protection
seller.
It seems highly unlikely that
SG would have accepted that it
had any reason to payout under
the credit default swap. (Aon ar-
gued that a surety bond issued by
the Government Service Insurance
System of the Philippines enjoyed a
sovereign guarantee.) However, the
case hinged not on Aon's right to
call the credit event but on the need
for Aon to deliver an obligation to
SG to get paid under the credit de-
fault swap.
The original judge accepted that
SG owned Aon under the credit de-
fault swap even though Aon did not
complete the physical settlement.
"The rulings are directly contrary to
the settlement mechanics set forth
in the Isda's standard documenta-
tion that is used in this $17.1 trillion
market," argues Isda in its brief
The trade was a 'long-form'
contract predating the introduc-
tion of the standard 1999 short-
form confirmation and definitions.
Nevertheless, Isda argues that the
concept of delivery-versus-payment
is spelled out in the documentation
with sufficient clarity that there was
Short form
Markit bUys post-
trade vendor
Data company Markit has bought
New Jersey-based software ven-
dor Communicator. The pur-
chase takes Markit, best known
for its consensus pricing service
for credit default swaps and its
Red database of credit deriva-
tives reference entities, into the
increasingly competitive market
for credit derivative post-trade
processing.
Privately-owned Communica-
tor.which was set up in 1999
by a group of former Salomon
Brothers IT professionals, pro-
videsWeb-based software for
reviewing and comparing GTC
•derivative·docUmentation.
LeoSC:hlinkert,.Communica-
tor'spresident,willjoin Markit's
executive.team,Communic:ator,
which. becornesa wholly owned
subsidiary ofMarkit, is expected
to be integrated into its new par-.
entin due.course.
1"radeweb launches·
EurC)peanc.ash
tradingsysJ;em
Thomson Tradewebhasan-
nouncedthelaunchof a European
cash credit trading platform. The
company says it has signed up
eighidealersto the dealeNo-di-
entsystem.Tradeweb·isalready
present in the European credit
marketwith a tradingsystem for
.credit default swaps. In addition.
its North American offering in-
c1udesboth cash and derivative
creclitTnstrumellts;
CDS volumes grow
The Ballkforlnternational
Settlements says cree! it default
swap notionals increased to $13.7
trillion in the second half of 2005.
Growth wasparticulady strong in
the.single-n.ame·market. Notional
amounts increased to $1 0.2tril-
lion. Credit: portfolio swap notion~
als roSeto$3.5trillion.
I June 2006

NEWS
no need for the district court judge
to look outside the contract to reach
his decision. The judge found that
the SG/Aon contract was ambigu-
ous and drew reference in his deci-
sion to a separate credit default swap
which Aon had traded with a differ-
ent counterparty. MP
Isda unveils standard
recovery docs
Isda has published a template for
trading recovery lock credit deriva-
tives, or recovery swaps. Introducing
a standardised way of trading recov-
ery swaps follows a recent increase
in trading volumes, due mainly to
the distress in the North American
auto sector.
The template formalises the
zero premium approach to trading
recovery swaps which the market
had already largely converged on.
Such trades lock in recovery rates by
setting the reference price at a strike
You don't need a quant to spell it out for you ...
... because the numbers speak for themselves
level, and setting the fixed rate pre-
mium at zero. Following a credit
event, the recovery seller receives
the strike and delivers reference ob-
ligations to the recovery buyer.
The recovery seller makes mon-
ey if the reference obligations are
worth less than the actual recovery
rate. The protection buyer is there-
fore the recovery seller, and is short
the recovery swap.
Dealers say that it has been
relatively easy to encapsulate recov-
ery swaps in standard documenta-
tion. However, the possibility that
a protection buyer (recovery seller)
could lose money if a credit event is
triggered - an odd notion compared
with the usual way that credit de-
rivatives function - required some
thought.
Notes a credit derivatives
dealer: "Recovery swaps sound like
a pretty easy product to put into
documentation. However, it is a lit-
tle bit more complicated when you
Credit.
look into it. The protection buyer
might realise a loss, depending on
where recovery is, and might not
want to trigger."
As a result, the documenta-
tion gives the protection seller, or
recovery buyer, the right to deliver
a notice of physical settlement from
the 35th calendar day up to the 45th
calendar day after the event deter-
mination date.
Except for clerical errors, pro-
tection buyers must stick to the ref-
erence obligations and principal bal-
ances set out in the notice. Over the
first 35 calendar days, a protection
buyer can deliver a notice of physi-
cal settlement in the normal way.
A protection buyer's notice takes
precedence over a protection seller's
ifboth notices are delivered on the
35th calendar day.
Credit events under the recov-
ery lock confirm mirror the triggers
that apply geographically to stand-
ard credit default swaps. EH
Advertise in Creditflux to
get your message to the
entire market:
sell side
buy side
consultants
monolines & DSPs
Call +44 20 7253 4878
or email
publisher@creditflux.com
to advertise in Creditflux
 Credit
Market awaits surge
of loan-referenced
synthetic CDOs
Arrangers and rating agencies expect
a sharp increase in synthetic CDOs
backed by leveraged loans in coming
months. Unlike the many cash-
flow, market value and total return
swap-style deals that have used loan
collateral in the past, these deals
are structured as classic synthetic
CDOs, with investors buying a
credit-linked note or swap referenced
to a tranche of a credit portfolio.
The structural difference be-
tween these deals and most synthetic
CDOs is that the deals use a loan-
only credit default swap, where the
only assets that can be used to trig-
ger or value a default are loans.
Such transactions have appeared
sporadically for several years, with
Bank ofAmerica probably the most
active protection buyer through deals
issued by its Strata vehicle. In the
first quarter of2006, Creditflux's
list of portfolio credit swaps (see
www.creditflux.com/data) includes
only one such synthetic CDO, Citi-
group's Beach Street.
However, several dealers con-
firm that they are working on a
number of synthetic loan transac-
tions that are expected to come to
fruition shortly. Buy-side sources
report that there is already a dis-
cernible increase in demand for loan
assets from dealers looking to hedge
these synthetic CDOs.
The US has by far the largest
universe of outstanding high-yield
loans. However, the synthetic deals
in the pipeline typically include both
European and North American
reference assets, with the somewhat
higher yielding European assets
providing much of the juice for the
transactions.
Coming deals are likely to in-
clude both managed and static port-
folios. "We are seeing a clear trend
towards leveraged loan synthetic
transactions," says Paul Mazataud,
managing director at Moody's in
Paris. "We are being asked to look
at both static and managed deals,
including both European and North
12
/iiJ;:j': i:i:;', t"FI'.. ?'~;~d
IH~if"ffi
American loans. This may be a part
of the market with a lot of potential
given the development of the single-
name loan-only credit default swaps
market and investors' demand for
new and possibly higher yielding
exposures."
Although investors have gen-
erally shunned synthetic CDOs
referenced to high-yield names in
the past, it is thought that the high
historical recovery rates of high-yield
loans compared with bonds is a key
factor in persuading them to con-
sider lower-rated reference assets.
But the key factor behind the
growth of this type of deal is un-
doubtedly the growing market in
loan-only single-name credit default
swaps.
The imminent launch of a
standard Isda confirm for this type
of trade (see page 5), along with the
prospect of a credit derivative loan
index further down the road, should
make it more efficient for dealers to
hedge these transactions, and that
could fuel the growth of this part of
the market even more.
MICHAEL PETERSON
Arrangers look
to fully rated CPPI
deals
Rating agencies are racing to issue
the first ratings on credit CPPI
transactions that will address the
risk of both the principal and the
coupons of the notes.
Most of the credit CPPI notes
issued since the market began a
couple ofyears ago have been rated.
But in all cases the ratings
address only the principal- which
is protected through the rebalancing
mechanism - and not the coupons,
which bear most of the risk.
Structurers believe that fully
rated deals could expand the market
for credit CPPI. "One thing that
worries potential investors is the un-
certainty of their return," says
Alberto Thomas, head of credit de-
rivative structuring at Royal Bank
of Scotland in London. "If you have
an independent agency quantifying
::;, . : &RMSHEET:ri'~'i::':<i);fi~Si:!]r'::::>l!'TE
H~'d_
that risk it will improve the mar-
ketability of this product." Thomas
confirms that RBS is talking to rat-
ing agencies about getting coupon
ratings on future CPPI products.
S&P has already put out a pre-
sale report on one ABN Amro deal
in which it assigns preliminary prin-
cipal and coupon ratings.
Andrew Feachem, a structured
credit marketer at ABN Amro in
London, says that deal is now likely
to emerge in a slightly different form
over the next couple of months, but
that the work ABN Amro has
done confirms the value of a coupon
rating.
"It is the missing piece in the
puzzle," he says. "Having full ratings
helps investors through the internal
approval process because there is an
extra set of eyeballs on the transac-
tion. It should also makes things
easier from a regulatory capital point
ofview in the case of a bank inves-
tor. We think it will significantly
increase demand for this type of
structure."
Adds Juan Carlos Martorell, a
structured credit marketer at ABN
Amro: "Getting a rating can be a
lengthy process. However, the basic
methodologies the rating agencies
use are the same as for existing prod-
ucts: CDOs for assessing defaults
and recovery rates, and leveraged
super seniors for modelling spread
moves."
The main issue a rating needs
to address is the probability of a
cash-out event. CPPIs 'cash out'
when their cash reserve falls below a
predefined floor, and the remaining
cash is used to buy a zero coupon
bond which will repay principal
upon maturity. In a credit derivative
CPPI, the reserve is used as col-
lateral to sell protection on a credit
portfolio.
Just like the subordination in a
synthetic CDO, the CPPIs reserve
can be reduced by losses in the port-
folio. However, unlike a synthetic
CDO, a CPPI is constantly marked
to market, and mark-to-market
losses in the portfolio also reduce the
size of the reserve.
As a result, the extra dimen-
I June 2006

sion the rating agencies need to
model is the likelihood that spread
moves will force the CPPI to cash
out. "Our methodology for rating
the coupons on a credit CPPI deal
has a lot in common with other
methodologies, such as market value
CDOs and leveraged super senior
synthetic CDOs," says Paul Maza-
taud, Moody's head of derivatives
for Europe and Asia. "The key thing
is to model spread movements. But
we also need to have in place guide-
lines about the way the portfolio will
be managed, since that affects future
spread movements and therefore
coupons."
Since the rating agencies need
to model spread movement, coupon
ratings are likely to be limited to
those deals with liquid underlyings,
particularly untranched credit indi-
ces. "We are limited in terms of the
type of CPPI underlyings we can
rate," says Cian Chandler, analyst
at S&P in London. "Currently, we
are looking at long-only positions in
full indices. There is no reason we
couldn't rate deals based on bespoke
portfolios of single names, but a
benefit of using a rolling invest-
ment-grade index is that it keeps
the portfolio investment grade. You
only need to worry about the credit
drift in the six months between each
roll and not longer-term credit ex-
posure."
Although rating agencies say
they can, in theory, rate coupons
anywhere up to triple A - depend-
ing on the structure of the deal- in
practice, coupons are likely to be
rated somewhat lower than that
level. Chandler says most of the
deals that S&P is currently looking
at are for ratings of between A and
AA.
The big hurdle for getting CPPI
coupons rated is that the initial rat-
ing methodologies could be too con-
servative to make deals economically
worthwhile. "The rating agencies
need to make assumptions on the
volatility of spreads," says Thomas at
Royal Bank of Scotland. "Because
those assumptions are stressed, they
are typically higher than historical
volatility." MP
I June 2006
Washington Square
launches long/short
managed synthetic
Washington Square Investment
Management has brought to market
what it says is the first long/short
managed synthetic CDO to employ
a leveraged finance trading strategy
in the short bucket.
In May the London-based firm,
which has a strong focus on emerg-
ing market credit, closed the first tap
of a proposed €75 million to €100
million issue. The deal, named Silver
Square 2006-1, has been marketed
in Europe and Asia. WestLB is the
buyer of protection, with the notes
issued by the Khamsin Credit Prod-
ucts special purpose vehicle.
The deal is structured to be
long 100 and short around 30 cor-
porate and sovereign names. Short
positions are in names the manager
identifies as likely LBO candidates.
The strategy aims to take advantage
of current historically tight spread
levels by predicting idiosyncratic
weakness in credits.
Says Karan Chadha, manag-
ing director at Washington Square:
"The question is, how do we take the
right risk-reward in an extremely
tight environment? I think this is
one clever option for capitalising on
that. Even after paying for the short
aspect you still get good carryon the
overall trade because the shorts are
so cheap right now. When widening
takes place you will find excess or
disproportional widening on names
in the double-B space over those in
the triple-A space. The divergence is
much more radical."
Trades already done are on
tranches that are 1% thick, with
attachment points at 5.7% for the
triple-A tranche and 5% for the
double-A piece. The manager plans
to use the excess spread it generates
from the short bucket to improve the
quality of the long portfolio through
further trading.
Says James Segal, a senior
structurer at WestLB: "In the event
of a downturn in the credit cycle,
spread widening in the short portfo-
lio may offset widening in the long
Credit
portfolio. In addition, the extent of
credit widening in the short bucket
is likely to be greater because of its
inferior credit quality and the LBO
candidates. This should increase sub-
ordination for rated note holders and
potentially lead to rating upgrades."
Previous CDOs managed by
Washington Square include White
Tower Diversified Credit Portfolio, a
€500 million synthetic CDO refer-
encing investment-grade, high-yield
and emerging market securities, in
October 2003. In March 2005 the
firm launched Wakefield Tower, a
€580 million diversified synthetic
CDO. More recently it has launched
Carador, a managed CDO equity
fund listed on the London Stock
Exchange, and Auriverde, an
emerging market principal protected
transaction.
DAN ALDERSON
Ixis CIB launches
managed CPPI trade
Ixis CIB has launched a credit
CPPI deal based on a managed
long and short portfolio of single
names and index trades. The deal,
Caravelle DPI, will be managed by
Ofi Asset Management, part of the
Paris-based Ofivalmo Group which
is owned by a consortium of French
mutual insurance companies.
The bank is marketing the deal,
which was expected to be completed
by the end oflast month, to inves-
tors in Europe and Asia. "We are
offering a lot of flexibility in terms of
issuance formats, coupons, curren-
cies and maturities, with the aim of
reaching a wide range of investors,"
says Victoire Blazsin, a structured
credit marketer at Ixis CIB in Paris.
Notes will be available with
or without coupons in five, seven,
eight and 10 year maturities, and
are expected to be rated triple A for
return of principal by Moody's and
Standard & Poor's. There will also
be full disclosure of positions in the
portfolio to investors updated on a
weekly basis.
As with other managed CPPI-
type trades, the manager has a lot
more trading flexibility than in a
13
 Credit,

TERM , '

typical synthetic CDO. Ofi Asset

Management can trade single-name
credit default swaps, credit indices,
and buy and sell bonds. The deal
includes no index tranches, making
it different from many of the credit
CPPI trades launched to date.
"It seemed to us that many in-
vestors were keen to access long and
short credit strategies given today's
tight credit environment but without
exposure to tranche correlation,"
says Blazsin. "In Caravelle, Ofi
Asset Management has the flex-
ibility to pursue a full range of credit
strategies outside structured credit,
including curve trades, outright
shorts and relative value trades. In a
CSO [synthetic CDO], by contrast,
tranche rating constraints can really
limit the manager's ability to use its
expertise and express its views."
Short positions in the portfolio
can be as much as 42% oflong posi-
tions, and the strategy is expected to
be biased towards the short side at
inception. Target returns are 350 to
400 basis points over Euribor in the
case of the lO-year notes.
Ofi Asset Management's strat-
egy for the Caravelle portfolio is
driven by sector and country views
on credit. "What we have found
with managing CSO portfolios is
HEET
that getting the right sector alloca-
tion is key to the success of the deal,"
says Guillaume Launay, the firm's
head of credit. "Given today's tight
level of investment-grade spreads,
our main focus is to identify the
countries and sectors that are likely
to widen in the next two years. For
example, we are underweight sectors
such as US autos that are at most
threat from Asian and eastern Euro-
pean competition."
As in other recent credit CPPI
trades, leverage is managed using
a dynamic, asset-specific cushion-
management technique which !xis
CIB calls dynamic portfolio insur-
ance (DPI). Ofi Asset Management
monitors the leverage in the portfo-
lio based on the bank's guidelines,
which apply different multipliers
to different assets. These multipli-
ers range between 15 and 25 times
based on the spreads and ratings of
the individual credits.
Ofi Asset Management has €14
billion under management and has
pushed into credit in the past 18
months. It currently has €700 mil-
lion in CDOs under management,
including its debut CDO Kheops
CDO I, arranged byJP Morgan in
2005, and the recent Eiffel CDO
2006 on which Calyon is the dealer.
Caravelle will be managed by
the same 12-strong team. ''A CSO
is the perfect vehicle to print when
spreads are wide and correlation is
high," says Launay. "Although CSOs
have been a great tool for inves-
tors last year and so far this year,
a DPI such as Caravelle gives us
much greater flexibility to adapt to a
changing market environment." MP
CRE specialist plans
CDO
Specialist commercial real estate
lender Potomac Realty Capital is
reported to be planning its inaugural
cashflow CDO. The company, based
in Needham, Massachusetts, would
become one of a growing number of
companies in the commercial real
estate sector to make use of CDOs
as a financing tool.
Other managers of commercial
real estate CDOs include North
Star Capital, Brascan Real Estate
Financial Partners and Arbor Realty
Trust. Unlike most CDO managers,
these firms typically invest in a large
proportion of the equity of their deals
and consolidate the liabilities on their
own balance sheet. There is no word
on the arranger of Potomac's forth-
comingCDO. MP

Recent cashflow CDOs

Pricing Issue Size (in) Manager Arranger Collateral
05/05/06 Mount Wilson 2006-1 $306.7 Western AM Merrill Lynch high-yield ,loans
05/05/06 Diversey Harbor ASS CDO I $2,500 Vanderbilt Cap Ad Citigroup 'asset-backed securities
04/05/06 WG Horizon CLO I $400 Westgate Horizons Ad Credit Suisse highcyield loans
04/05/06RMF Euro IV €444 RMF .InvProds BNP Paribas highcyieldloans
04/05/06 Harbourmaster Pro Rata 2006-1 €871 HarbourMaster ABN Amro highcyield loans
04/05/06 Cornstock Funding 2006-1 $471 Silvermine Cap Mgmnt Citigroup investment-grade loans
04/05/06 Babson CLO 2006-1 $575 Babson 'Capital Morgan Stanley highcyield loans
04/05/06 Airlie CLO I $400 Airlie JPl'1organ high-yield loans,
03/05/06 Mercury Limited III $1,002.5 ChotinGroup Merrill Lynch asset-backed securities
02/05/06 Anthracite eRE CDO 2006 Hy.1/3 $645.4 BlackRockFin MgmntBank of America asset-backed securities
28/04/06 Gemstone V $676 BlackRock Fin, Mgmnt Deutsche Bank asset-backed seclJrities
27104/06 GSC European CDO III €420 GSC Partners Lehman Brothers high-yield,loans
27/04/06 HalcyonStructured AM ,CLO I $460 Halcyon Structured AM Deutsche Bank high-yield loans
27/04/06 NavigareFundingl $300 NavigarePartners Goldman Sachs High"yieldloans
27/04/06 Octagon InvPartners IX $399.8 Octagon Credit Jnvestors JP Morgan high-yield loans
26104/06 MarathonRE CDO 2006-1 $1,000 Marathon AM RBS G reenwichCap asset-backed securities'-
26/Q4/06 Millstqne Funding II $1,511.5 DrKW nmet-backed se:clJrities
26/041fJ6Mount SkylightCDO $1,000 Deutsche Bank ass~t~backedsecurities

14 I June 2006

TRADING DESK
Winds of change chill credit
Some said it would take a credit shock or a
sudden derioriation in the economy to put
an end to the recent dramatic squeeze in
credit spreads. But if mid-May's uptick in
spreads is really the beginning of the end of
the bull market, the only triggers have been
falling equity and commodity prices, and
volatility in the FX and interest rate markets
Week beginning
24 April
Direction: tighter
Volume: light
Credits in the spotlight: Intelsat,
Rite Aid, Grohe, Lear, Air France,
Thomson, Aiful, Domtar, Bowater,
Mediacom
Liquidity is continuing to drain
from the credit derivatives market,
dealers report, after a four-week-
long ratcheting in of North Ameri-
can spreads, and in Europe a return
to the tight levels of three weeks
ago.
The structured credit bid has
been a major driver of the tighten-
ing. In the crossover market, spreads
have reached their tightest ever
levels, partly reflecting the reach
for yield among investment-grade
CDOs. Such transactions include
high-yield and crossover buckets.
"Inevitably as spreads tighten,
the size of the buckets increases,"
says a sell-side credit structurer.
"Portfolios for triple-A tranches
have twice to three times the aver-
age spread of the main investment-
grade index, so there are a lot of
names in those portfolios that are
not in the main index."
AMR vs Lear, S.year CDS (bp)
2000
500
o 1w.twJW1WLWW<lJJJ.lJllwuwwuwJWWJJW1WLWW<wuwJWWJJWWJJW1WJW1WLWW<wuwWJJ
17 Nov I Dec 2 Jan I Feb
I June 2006
Meanwhile, triple-C rated
credits have produced some of the
most dramatic tightening, as spreads
have been crushed.
For example, satellite com-
munications firm Intelsat has
moved 96 basis points tighter on the
month, says price service Markit, to
530bp on 25 April. North American
drugstore chain Rite Aid is 53bp
tighter on the month, at 478bp.
Meanwhile, low single-B credit
Grohe has tightened by 108bp, says
Markit. The bathroom fittings firm's
five-year default swap closed at
555bp on 25 April.
Auto parts supplier Lear Corp
has rallied even more dramatically,
despite being downgraded to single
B by all three rating agencies since
mid March. According to Markit,
Lear's five-year credit default swap
was trading at 589bp on 25 April.
That is 267bp tighter compared with
a month earlier.
In the tranche market, CDX
five-year and seven-year equity and
lO-year junior mezzanine tranches
have been rallying strongly. Week
on week to 21 April, the 0-3%
tranche of the five-year CDX IG
series 6 tightened $1.75, says Ash-
ish Shah, co-head of credit strategy
AMR
Lear
IM..- JApe I May
Credit
at Lehman Brothers in New York.
But the investment-grade five-year
7-10% tranche widened 4bp on a
delta adjusted basis, he says.
The rally has accelerated the
roll-down on the off-the-run
tranches, adds Shah, resulting in
very tight levels on the senior and
mezzanine tranches.
In Europe, the rally in the
underlying market has been driv-
ing equity tranches tighter, and
mezzanine tranches wider across all
maturities, he says.
Week beginning I May
Direction: tighter
Volume: moderate
Credits in the spotlight: Visteon,
American Axle, Toys R Us, Lyon-
dell Chemicals, Equistar Chemicals
Anybody who felt it was safe to put
on new curve steepeners over the
past week should have remembered
that the soccer world cup is coming
up. Dealers say that with quiet sum-
mer months approaching there is
little likelihood of any news to help
reverse the current squeeze tighter.
"People are getting hosed," says
one trader. "Five to 10 steepeners
have been smashed. Curve flat-
tening is squashing any benefits of
positive carry and roll-down. We
are devoid of credit news. There's
nothing out there to frighten people.
Everyone is packing up for the sum-
mer and the world cup."
Adds an iTraxx Xaver trader:
"You can't see a bid in five-year, let
alone lO-year. People are trying to
cover shorts and desperately hitting
the Xover."
Indices in both Europe and
North America reached new tight
levels on 2 May, with iTraxx
Xaver at 222/224bp, HiVol at
44.75/45.75bp and Europe main
at 26.5/27bp. Dow Jones CDX IG
closed at 34bp mid price on 2 May,
versus 37.5bp a week earlier.
In Europe, dealers say that new
short positions were being built
up in the 245bp to 250bp area in
the Xover index. But the index has
smashed through those levels.
Says one trader: "We saw
15
 Credit
TRADING DESK
tights of 245bp after the big rally in
March and ApriL We went back up
to 270bp and a lot of people decided
we had found a new range. But it's
the same story. People think they
can call the bottom of the market,
but then it goes tighter and there's a
capitulation."
According to one trading desk,
recent index trading volumes have
been around 25% higher than the
2005 weekly average. In Europe,
a lot of that flow has been going
through the Xover index.
Says one trader: "The universe
in Xover is enormous. It gets used
as a macro hedge for all types of
portfolios. When it rallies like this
you get a lot of sellers. It feels like a
meltdown."
Week beginning 8 May
Direction: wider
Volume: moderate
Names in the spotlight: Ford,
Fairfax Financial, Degussa, Boots,
VNU, Vivendi
Traders this week report record
trading volumes for North Ameri-
can single-name CDS ofABS and
a rejuvenation in flow across the
corporate credit market.
According to figures from one
North American dealer, volumes for
single-name CDS of ABS reached
$2 billion-2.5 billion in the week
ending Friday 5 May, with Friday's
volumes alone upwards of $330 mil-
lion on the day.
Traders say much ofthis vol-
ume resulted from so-called BWICs
and OWICs (bids and offers wanted
Venezuela vs Indonesia, S-year CDS (bp)
200
16
in competition), which have been
placed by structured books to ramp
up and unwind trades. BWIC/
OWIC positions allow the placer to
choose the best price for a transac-
tion from a list of prices submitted
by different dealers.
Says one New York-based trad-
er: "It has been a big week for the
CDS of ABS market. There are a lot
of people trying to fill CDO risk by
executing long/short strategies using
BWICs to go long and OWICs to
go short or unwind."
Dealers say that the ABX
Home Equity index has also seen
high volumes due to the structured
book push.
Says one sell-side trader:
"There's great liquidity, but also a
strong imbalance of CDS-wrapping
assets which drives spreads tighter.
ABX is actively traded and quoted
- it's kicking off at a very good
pace."
In Europe, however, traders
say supply and demand issues have
made for a lack of new developments
in the ABS space.
Says one London-based trader:
"In the first quarter of 2006 we saw
decent new issuance, but the second
quarter is lagging so far on 2005.
Right now demand way outstrips
supply."
Meanwhile, corporate credit
traders in Europe say volumes have
picked up significantly in recent days.
Says one trader: "It's too early
to call but two-way flows are back.
There seems to be willingness to
trade again after the dramatic drop
in volumes in April and in terms of
Indonesia
Venezuela
.
levels we are consolidating. There's
certainly a bit more risk appetite."
According to market partici-
pants the telcos sector has seen some
of the heaviest activity. Says one
official at a London bank: ''A lot of
structured credit people have ex-
posure to telcos and going forward
they think spread-wise we've seen
the tights and there's very little
downside in hedging long positions
at these levels."
There has also been protection
buying in the HiVol index. One
trader points out that the differ-
ence between iTraxx Europe and
the HiVol index had narrowed to
as little as 20bp a few days ago, but
yesterday widened to 23bp. "People
are getting more confident that this
horrific squeeze is nearly over and
at some point the credit market will
come back to a more rational pric-
ing," says the trader.
Actively traded names include
Degussa and Boots, both ofwhich
have raised issues of deliverables.
Trades on LBO names such as
VNU and Vivendi remain subdued,
however, with little flow of real
news. Vivendi reached a wide of
50bp on 10 May (7bp wider on the
day) on rumours of a takeover, but
traded back in tighter to 44/49bp as
these claims were rebuffed.
Week beginning I S May
Direction: wider
Volume: moderate
Names in the spotlight: GMAC,
emerging market sovereigns
A week of falling equity indices,
commodity prices and a hike in US
interest rates have all contributed to
widening credit spreads this week,
with emerging market sovereigns
seeing some of the biggest increases
in spreads and heaviest trading. The
CDX emerging market index has
moved some 20 basis points wider in
the past week.
In Asia, for example, traders
say the majority of credit trading
volume has focused on sovereign
credits, with Philippines widening
23bp on the week to 166bp by 16
May, according to Markit. Indone-
1 June 2006
 Credit
TRADING DESK

sia, meanwhile, is out 9bp on the

week at 152bp.
"People have a bit more aver- Ford vs General Motors, S.year CDS (bp)
sion to risk than last week," says one 1500
trader in Hong Kong. "Indonesia
and Philippines have come a long
way, as have most emerging mar- 1200

ket names. The market is looking

around now and saying 'we've priced
in too much good news'."
Even so, there are still strong
technical forces pushing down on
spreads. "We've seen some mar-
ginal weakness in investment-grade
names," notes one trader in Asia.
"But there are still a lot of shorts
from CDOs out there. We've seen
some widening in Indian names by
a couple of basis points, and then
some of the high-yield names have
also widened 10-15 bp."
On 16 May, Noble Group was
quoted by one desk at 222bp (7bp
wider). Vedanta, meanwhile, moved
from 200bp to 215bp over the
course of the same day. Traders say
volumes outside of sovereign names
were muted, however.
Market participants note
that similar effects have been felt
throughout the credit derivative
markets. Other emerging market
names, including Argentina, Ec-
uador, Venezuela, Brazil, Turkey
and Peru, have all experienced sig-
nificant volatility in recent trading
sessions. Argentina, for example,
widened 28bp on 12 May to 289bp,
then tightened back in to 277bp on
600 LLL-U-JCU-J...U.-U-JCU-J...U.-U-JCU-J...U.-U-JCU-J...U.-U-J..J..LJ...U.-U-J..J..LJ...U.-U-J...J..J
I Mar 15 Mar
15 May before continuing to widen
on the following two days.
Says one London-based trader:
"A wave of uncertainty began at the
end oflast week which took its cue
from developments in the currency
markets, with a relatively weak
dollar and a strong yen. Then this
week all the carry currencies such as
Turkish lira, Brazilian real, some of
the Asian currencies, took a pretty
significant beating and that has fil-
tered through to weaker emerging
market spreads and to some degree
weaker credit spreads."
In Europe and North America
investment credits are generally
moving wider in the absence of any
particular credit stories, and in spite
of strong structured credit activity
which could normally be expected
to push spreads tighter. "It's purely a
macro call," says one trader.
Traders note that a so-called
29 Mar 12Apr 26Apr 10 May
'decompression trade', based on the
widening relationship between Hi-
Vol and Europe is still some way off
returning value.
Says one trader: "It probably
won't perform in the very short term
because they've been tracking each
other more or less on a two-to-one
basis, but if individual names find
their true level that relationship
probably won't hold and over time
you'll see more severe widening in
the HiVol."
Notes another trader: "The mil-
lion-dollar question is whether this
is just a small blip or if it signifies a
shift in mentality and more aware-
ness to risk. There hasn't been any
panic selling in the credit markets
just yet, but everyone will be watch-
ing the equity and FX markets very
closely now."
DAN ALDERSON,
EUANHAGGER

Credit indices

Basis points (mid price) 16 May 2006 9 May 2006 2 May 2006 25 Apr 2006 18 Apr 2006 II Apr 2006
North America
DjCDXNAIG 40.0 36.7 34.0 37.5 39.0 39.5
DI CDX NA HVOL 6807 64.4 70.8 74.6 75.3
DICDXNAXO 167.5 156.3 147.6 161.5 165.5 174.9
DICDXNAHY 304.2 294.7 284.1 298.3 312.1 322.3

Europe
iTraxx Europe 30.2 28:3 26,8 29.4 31.5 28.8
iTraxx Europe.HiVol 54.2 49.1 45,.6 50.4 56.0 56.7
iTraxx Crossover 248.7 234.7 226:7 . 247.8 270,2 266.9

Japan
iTraxxC) lapan 27.5 ·27.3 28.4 ·29.3 29.1 27.4

Others
DICDXEM 159.2 146.7 165.2·
iTraxx ex-Japan 53.5 57.4 56.9
iTraxxAustralia 27.2 28,5 28.8
-So~rces:--Mc"kjt._l.nternat;onal- Index Company

1 June 2006 17
Credit
TRADING DESK

•
Single-name credit default swa~rlces
(five years) 16 May 06 25 Apr 06 (five years) 16 May 06 25 Apr 06
bid offer bid offer bid offer bid offer
EUROPE (iTraxx Europe 5) EUROPE (iTraxx Europe 5)
ABN Amro Bank NV 7 7 7 8 Monte dei Pasch; 12 14 12 15
Accor SA 41 45 3S 40 Munich Re 12 15 13 17
Adecco SA SO 53 41 45 National Grid Transco Pic 20 22 21 23
Aegon 14 16 13 19 Nokia 5 8 6 10
Akzo Nobel 25 29 22 25 Nestie 12 15
Allianz 12 14 12 16 Pearson 36 40 30 35
Altadis SA 40 44 43 47 Peugeot 25 27 23 26
Arcelor Finance SCA 49 54 45 52 Phillips Electronics 19 21 21 22
Auchan SA 18 21 18 23 Pinault 38 40 40 46
Aviva Pie 12 14 12 16 Portugal Telecom 114 124 130 144
AXA 13 16 15 19 RBOS Pie 6 8 S 9
Banca Popolare ltaliana 29 39 30 38 Reed Elsevier 25 30 23 33
Banco Comercial Portugues 10 13 10 13 Renault SA 26 29 24 28
Banco Espirito 10 13 12 14 Rentokil Initial Pic 50 60 25
Barclays Bank 8 9 8 10 Repsol 38 41 27 31
BAT 34 38 36 40 Reuters Group PLC 26 28 23 25
Bayer 30 33 23 27 RWEAG 14 19 16 20
BBVA 9 II 9 II Safeway Ltd 41 46 42 46
Bertelsmann AG 32 41 30 34 Saint Gobain B.Y. 25 27 27 28
BMW 17 20 19 20 San Paolo IMI II 14 II 14
Boots Group Pic 34 36 27 30 Sanofi-Aventis 13 16 13 17
British Aerospace 25 31 36 Santander 10 II 10 12
British AirportAuthority 52 56 52 55 Siemens 12 15
British Telecom 49 53 48 52 Sodexho 26 30
Cadbury 25 30 26 Stora EnsoOYJ 48 53 S3
Capitalia SpA 14 15 14 16 Suez Lyonnais 17 20 16 20
Carrefour SA 16 18 15 18 Svenska Cellulosa 26 31
Centrica 36 40 33 37 Swiss Re 16 18 16 21
Clba Specialty 52 56 tate & Lyle PLC 29 34 30 37
Commerzbank 10 13 10 13 Technip 21 23
Compass Group 50 56 25 28 Telecom .Italia 47 52 43
Continental AG 31 34 45 50 -Telefonica 41 43
u
43
DtX 56 59 31 33 TeliaSonera 27 31 30
Degussa 76 86 54 58 Tesco PLC 15 18 16
Deutsche Bank 10 13 75 85 Thomson 69 76 78
Deutsche Telecom 37 41 10 13 UnlCredlto 12 14 13
Diageo 16 18 33 38 . UnileverNV . 15 19 21
DSG International 42 45 15 19 Union Electrica Fenosa 26 27 24
E:bNAG ]8 21 40 44 lJnitedUtilities.l'iC 17 2;2 19
EDF 12 14 17 21 UPM-Kymmene Oyj 46 48 40
Ed~onSPA 18 23 13 16 Valeo 54 57 5.4
Electrolux 35 42 21 23 Vattenfall 16 20 15
Endesa 18 23 34 '36 'yeoO~J;n;vir9n'6lent - 26 28 ·25
Enel SPA 19 21 20 25 Vivendi 52 57 46
Energias de Portugal SA 17 22 18 12 Vodafone 32 .33 31
Energie Baden-WuerttembergAG 15 19 20 24 Volkswagen 27 30 25
~·uTo·pea_~:Aer~n.aut:i_c:pefense VcilvoAB 31 3<1 34
an.d Space Company 15 20 15 19 Wolters Kluwer 46 49 40
Finmeccanica 25 29 17 21 WPPGroupPLC:: 26 28 .. 22
Fortum()yj 18 22 21 24 Zurich Insurance 15 18 16
France Telecom 36 39 20 25 NORTHA"'ERICA (C:Dx.NA IG6)
Gallaher 30 33 34 38 Ace LTD
Gas Naturai 28 33 Aetri'Jnc
Generali .. II 13 24 2.9 AIG
·GKN Holdings Pie 45 52 12 16 Alean 20 25
G·leni:ore International AG 105 115 48 55 Aleoa 15 20
GUS Pic 47 49 85 95 Allstate Corp
H~n~_9v:e.r.Re 16 18 38 41 Alltel Corp 45 50
Hellenic Telecom 51 56 15 19 .A.ltr;aGroup .51 57
. Henkel 17 23 50. 60 American Electric Power 28 33
Hypovereinsbank 10 13 19 24 NrieHC:.nEXpressC"r:R '. 18 I~
Iberdrola T7 21 II 13 Amgen Inc
·ICI 40 45 20 25 , An..gar~Petro 2:1. 26 Hi3
ImperfaITobacc"c;roup ·Plc 4~ 50 28 33 ;Arrow Electronics 54 61 57
IntesaBci II 14 43 47 Aut"Z".ne 6.4 6~ ~O'·
'ny 70. 16 I} ·15 Baxter Inti 21 25
Kingfisher 50 55 70 80 Bo"ingCo.!>C,,1p . 13, 16. 13.
Ki"N n 75 41 44 Bristol-Myers Squibb
Lafarge 34 38 73 80 BlIrlingconNor't/t"r" 18 21 .'16
[;i\deAG ,45 .~() ·35 4X' . Campbell 50up 17 21
Lufthansa Inti 46 49 35 40 CapiiaJOhi"Bank J5 18
LyMH 2.3· 28.,.. #' 54 u
..Cardinal Health Inc
. Marks & Spencer 34 36 24 27 ,Carnival;c:c:>tP : -.-. --
!"Iettei~"'~· .. 32' ' ·3.5 34 3~ ,Caterpillar Inc
,Michelin 30 33 32 34 CBS"···
ihm02 Cendant

18 I June 2006
 Credit
TRADING DESK

(five years) 16 May 06 25 Apr 06 (five years) 16 May 06 25 Apr 06

bid offer bid offer bid offer bid offer
NORTH AMERICA (COX NA IG 6) NORTH AMERICA (COX NA IG 6)
Centex 54 59 40 45 Temple-Inland 56 63 61 67
Centurytel Inc 64 69 45 50 Textron Financial Corp 21 26 19 25
Chubb Corp The Limited 50 53 55 60
Cigna Corporation 26 31 Time Warner Inc 44 48 43 48
Cingular Wireless 14 19 15 19 Toll Brothers 85 90 74 84
CIT Group 20 23 21 24 Transocean Sedco Forex Inc 33 35 24 29
Clear Channel 90 95 86 90 Tribune 50 52 47 56
Comcast Cable 33 35 32 36 Tyson Foods 100 105 118 125
Computer Sciences 65 75 60 70 Union Pacific Corp 20 25 21 26
Conagra 34 42 37 42 USA Interactive 72 85 79 84
ConocoPhillips 19 21 18 22 Valero Energy 32 36 31 36
Constellation Energy 26 29 26 29 Verizon Global Funding 22 28 25 30
Countrywide Home Loans 34 37 37 40 WalMart 8 10 14
Cox Communication 55 65 53 58 Washington Mutual 20 22 24 27
CSXCorp 21 24 21 26 Wells Fargo Corp
CVS Corp 15 25 21 25 Wendy's International 103 109 99 105
Devon Energy 13 21 23 27 Weyerhauser 43 48 44 49
Disney 18 20 Whirlpool 35 36 42
Dominion Resources Inc 35 40 37 40 Wyeth 18 20
Dow Chemical 19 25 23 29 XL Capital Ltd
Duke Energy ASIA (iTraxx Asia ex-Japan 5)
Dupont 19 22 20 30 Bank of China 20 25 28
Eastman Chemical 46 54 47 51 Cathay Financial Holding Co Ltd
EOP Chartered Semiconductor 64 67 67 74
Fannie Mae 10 II 9 II China 21 24 22 25
Federated Department Stores 28 33 28 35 China Development Bank 27
FHLMC 8 10 China Mobile HK LTD
FirstEnergy 36 41 39 41 Citic Pacific Ltd 80 93
Gap Inc. 83 93. 85 90 CNOOC Limited 23 26 31
GECC 13 16 Dev.BkSingapore
General Mills 23 25 Export-Import Bank of China
Goodrich (RF.) Co. 34 38 35 43 GentingBhd 30 40
--
Halliburton 21 26 HK Land Finance
Harrahs Operating Co 66 70 48 49 Hong Kong
Hartford Financial Hutchison Whampoa 33 36 34 38
Hewlett Packard 13 18 16 21 Hysan Development 32 42
Honeywell 16 19 15 20 Hyundai Motors 70 79
IBM II 16 10 15 ICICI Bank Ltd 71 73 67 70
Ingersoll Rand 14 24 Indonesia 161 171 170 175
International Lease Finance 20 23 21 23 KEPC:O 22 25
International Paper 51 57 S2 55' Kookmin 20 25 24
John Deere 18 22 Korea 22 23 22
Jones Apparel 157 174 159 165 Korea Telecom 26 30
Knight Ridder 64 72 Kore.nDevefopii\E'rit Bank 22 25
Kraft Foods 17 LG Caltex Oil 28 30
Kroger Co 40 43 72 M~laysia: 25 ;29 28
L~nri"rCorp 51 54 47 52 'Malaysia International Shipping 26 31 29
Lockheed Martin 19 22 18 23 Maybank
LoewsCorp 19 25 24 30 MTRCorp
Marriott Inti 29 34 28 34 Noble Group 216 226 220
Marsh & McLennan Comp~nies Overseas Chinese Banking Corp.
MBIA Panvas,Gas - 19_0_ 210 220
McDonald.Corp PCCW-HKTTelephone Ltd 40 45 43
Mckesson HBOC 25 26 Petrorias 21 25
MeadWestvaco 61 '65 68 Philippines 171 181 182
Metlife Inc Pasco:-- -- 31 36
Motorola 20 24 20 2~ PIT PCL 32 35
National Rural Utilities 16 20 16 19 Relfa:ntelnd 67 74 62
Newell Rubberniaid ;26 32 41 Samsung Electronics
News America Inc 30 35 SingaporeTelec.o.11l 14 1.8 14
Nordstrom SKTelecom 28 32 32
Norfolk Southern 19 20 17 22 State Bank oflndia 55 65 55
Northrop Grumman 19 22 18 23 Swire Pacific Ltd 23 30
Omnicom Tata'Motors 65 80 68
Progress. Energy 24 29. 28 3~ Telecom Malaysia 26 30 30
Pulte Homes Inc 67 73 56 61 T~~aga Nasiori," 32 38
Radioshack 115 12'2 110 115 -Thailand 37 39 35
Raytheon 19 23 19 25 Unit~d'Mic.roele_c_trOnics 35 55
Rohm&Haas .20 25• :4cf UOB
Sabre Holdings 96 102 82 '{ed~lnta Resburces 1.98
Safewaylnc 38 •Wharf Holdings - HK 32 42 31
_Sara Lee Corp 38 47 "CreJ[it(fe(alJltsW.ap'price,s-aresu~~I;ed6YGFI.v;sltwww.ifig"'QIJ~:Eonio
r_eniail-'
SBCCommunicatioris Int 11 :21- 18 C/idit@gfigroup,corri,(or:more,in(ormatioiJ
Sempra Energy 22 27 23
Sh~iWiri'Wil)iam~ 64 68 ~I
Simon Property Group LP
South",est,6;irlin'es 28 32 c28
-Sprint Nextel Corp 21 26
Su!,"erYalu 146_ I_51
Target Corp

1 June 2006 19
Credit
A"-ABASEDDATABASEDATABASEDAT
. ATABASEDATABASEDAT
D
'''''' __ ,"._
~I~
_, - , ' , ' " on"~ ,__ ,_ , , " _ ' __ '

Recent corporate and sovereign rating changes

Date Borrower Agency From To Rating type Comments
16/05/06 1'1 Slovenia S&P AA- AA sovereign credit
16/05/06 ~ Mediacom Communications Fitch B+ B issuer default rating
16/05/06 1'1 Loews Fitch A- A senior unsecured tobacco arm recovers
16/05/06 ~ Eastman Kodak Fitch B+ B- senior unsecured
15/05/06 1'1 Edison Mission Energy Moody's BI Ba3 corporate family
15/05/06 1'1 ABB S&P BBB- BBB+ corporate credit eqUity-linked bond conversion
15/05/06 1'1 Williams Fitch BB BB+ senior unsecured
12/05/06 1'1 Societe Generale Fitch AA- AA senior unsecured
12/05/06 1'1 Banco Santander CH Fitch AA- AA senior unsecured
12105/06 1'1 Pantry S&P B+ BB- corporate credit convenience store chain grows
12/05/06 1'1 Alliant Energy Resources Moody's Baa2 Baa I senior unsecured
12/05/06 ~ Aeroports de Paris S&P AA AA- corporate credit standalone credit quality
12/05/06 1'1 Baxter International Fitch BBB+ A- senior unsecured
12/05/06 1'1 Toyota Industries S&P AA- AA corporate credit
11/05/06 ~ Cooper Tire & Rubber Moody's Ba2 Ba3 senior unsecured
11/05/06 1'1 SK Corp Moody's Bal Baa3 senior unsecured
11/05/06 ~ Sincor Fitch BB B+ senior unsecured Venezuela doubles oil tax
11/05/06 ~ Petrozuata Fitch BB B+ senior unsecured Venezuela doubles oil tax
11/05/06 ~ Hamaca Fitch BB B+ senior unsecured Venezuela doubles oil tax
10/05/06 1'1 Cummins Moody's Bal Baa3 senior unsecured
09/05/06 1'1 Banco Santander CH S&P A+ AA- corporate credit profit growth
08/05/06 1'1 Westar Energy Moody's Bal Baa3 senior unsecured senior unsecured
08/05/06 1'1 Corus Moody's Ba3 Ba2 corporate family
08/05/06 1'1 Capital One S&P BBB- BBB corporate credit successful Hibernia integration
. 05/05/06 1'1 Baker Hughes S&P A- A corporate credit
05/05/06 ~ Peoples Energy Fitch A A- senior unsecured
05/05/06 1'1 Haliburton S&P BBB BBB+ corporate credit
04/05/06 ~CenturyTel S&P BBB+ BBB corporate credit
04/05/06 ~ American Axle S&P BBB- BB corporate credit
04/05/06 ~ Ciba Speciality Chemicals S&P A- BBB corporate credit
04/05/06 1'1 Williams S&P B+ BB- corporate credit
02/05/06 1'1 Enersis Fitch BBB- BBB senior unsecured
02/05/06 1'1 Belgium Fitch AA AA+ sovereign credit
01/05/06 ~. Albertson's Fitch BBB BB- senior unsecured
01/05/06 ~ Supervalu Fitch BBB B+ senior unsecured
28/04/06 1'1 Yum!Brands Moody's Baa2 Baa I senior unsecured
28/04/06 ~ FS Funding Moody's BI B2 senior unsecured ISS Global raises bond size
27/04/06 1'1 Kerr-McGee Moody's Ba3 Ba2 senior unsecured
27/04/06 1'1 Raytheon Moody's Baa3 Baa2 senior unsecured
24/04/06 ~ Iran Fitch BB- B+ sovereign credit
21/04/06 ~ Boston Scientific S&P A BBB+ corporate credit
21/04/06 ~ Boston Scientific Fitch A BBB senior unsecured
21/04/06 ~ Bosto~ Scientific Moody's Baal Baa3 senior unsecured Guidant acquisition
20/04/06 \II Knight Ridder Moody's Baa3 Ba I senior unsecured
20/04/06 ~. McClatchy Moody's Baa3 Ba I corporate family Knight Ridder acquisition
13/04/06 ~ Albertson's Moody's Baa3 Ba3 senior unsecured Supervalu plans to buy grocer
13/04/06 .~ Sup~rvalu Moody's BaaJ Ba3 senior unsecured levers up· to buy Albertson's
12/04/06 ~ Nasdaq Moody's Ba2 Ba3 corporate family buys LSEshares
12/04/06 1'1 ABB Moody's Ba2 Baa3 senior unsecured asbestos liabilitiescapPE!d
11/04/06 ~ TDC S&P BB BB- corporate credit
11/04/06 ~. Telecom ltalia Fitch A.,., BBB+ senior unsecured
10/04/06 ~ Corning S&P BBB- BBB corporate credit
06/04/06 1'1 JCPenney S&P BB+ BBB- corporate credit
06/04/06 1'1 Cemex S&P BBB- BBB corporate credit
06/04/06 ~Visteon Fitch B CCC- senior unsecured
05/04/06 1'1 DR Horton S&P BB+ BBB- corporate credit
05/04/06 ~·.. Inter"ubli<:: Moody's Bal Ba3 senior unsecured

$ources:Moody's,Standard.&·Paor's, Fitch.·rable.. includes.l:hanges·to senior debt rating· of borrowers·with approximately

$JbiJlion or more of bonds orloans outstanding. For a more complete listing visit www.credit(1ux.com

20 I lune 2006
~C...shf1o~CDO ..ating··changces
.. "";" <.. """","", . Agen" From To . Tnn,H. "m (m) C1"'... '''' M~ ..., Collnte,aI
I <1a •.
~ 09l05106~ GI()balHighYield B()nd Trus.t S&P CC D Class D $10 01/04/00 M()r1ey FM high-yield b()nds
o 09/05/06111 GI()balHighYield B()ndTrust S&P CC D Class C $19.9 01104/00 M()r1ey FM high-yield b()nds
o OW05/06l11GI()balHighYield B()ndTrust S&P.. CCC- D. Class B $29,8 01/04/00 M()r1ey FM high-yield b()nds
() 08/05/06+StahfieldRMFlTtansatlantic coO M()()dy's Ba3 Baa2 ClassCI $15 01105/00 Stanfield Cap Partners high-yield I()ans
08/05/06./fIStanfield RMF/TransatlanticCDO M()ody's Baa3 A2 Class B2 $20 01/05/00 Stanfield Cap Partners high-yield loans
OS/05/06+StanfieldRMF/TransatlanticCDO Moody's Caa3 B3 Class DI $19.5 01/05/00 Stanfield Cap Partners high-yield loans
08/05/06 +Stanfi~ld RMF/Transatlantic coo Moody's Caa3 B3 Class D2 $9 01/05/00 Stanfield Cap Partners high-yield loans
08/05/06+ Sci.r\fieldRMFlTransatlantic COO Moody's Caa3 B3 Class D 3 $ 6 0 01105/00 Stanfield Cap Partners high-yield loans
08/05/06+TIf\A Real Estate CD92002~ I Fitch A- A+ Class lIa $17 22/05/02 TIAA Advisory Services asset-backed securities
08/05/06 +TIAA Real Estate COO 2002 e l Fitch BBB BBB+ Class 1 1 1 $ 4 6 . 5 22/05/02 TIAA Advisory Services asset-backed securities
OS/05/06+ Stanfield RMFlTransatlantic COO
08/05/06+TIAA Real Estate CDO 2002-1
05/05/06 IIITIAA Structured Finance CDO
05/05/04+FairfjeldSti"eetSolar 2004-1
Moody's
Fitch
I S&P
S&P
Baa3
A'-'-
AA+
A-
A2
A+
AA
A
Class BI
Class lib
CiassA2
ClassC I
$36.5
$17
$30
$12.6
01/05/00
22/05/02
14/12/00
16/12/04
Stanfield Capital Partners
TIAA Advisory Services
TIAA
Massachussetts Fin Serv
high-yield loans
asset-backed securities
asset-backed securities
asset-backed securities
.'a:I
.:

'J>
05/05/06 + FaIrfield Street Solar 2004-1 S&P A- A Class C2 $8 16/12/04 Massachussetts Fin Serv asset-backed s e c u r i t i e s ;
05/05/06 + Fairfield Street Solar 2004-1 S&P BBB BBB+ Class D I $10.55 16/12/04 Massachussetts Fin Serv asset-backed s e c u r i t i e s '

05/05/06+TIAA
O. .5./0....5.1.0.. . 6•.•..•.+
•..... F.a...i.rfi Structured FinanceCDO
•. 5•. t.. r.e.. e•.. t.S.Ola.r.
•..••.I.e..•.I.d 2..00.4-1 .I S&P
S&P.. AA+
BBB AA
.BBB+ ClassAI
Cla.SS.D.2 $387.5
$4.'.9. . 14/12/00
1.6/12/04 TIAA
Massachussetts Fin Serv asset-backed
asset-backed securities
securities
03/05/06 + Simsbury CLO Moody's Aa I Aaa Class II $23 15/09/99 DL Babson high-yield loans .;
03/05/06> + Simsbury CLO Moody's Baal AI Class III $41 15/09/99 DL Babson high-yield l o a n s '
03/05/06 + Varick Structured Asset Fund Fitch B B-- Class A I $50 01/09/00 Clinton Group asset-backed securities
03105/06111 Bleecker Structured Asset Funding Fitch B+ B-- Class A I $45 01/03/00 Clinton Group asset-backed securities _
\M
·rn
0.3105/06.1116.,.Ieecke.r.Structured A.sset Funding Fitch B+ B-- Class A2 $3.15 01/03/00 Clinton Group asset-backed securities
03/05/06 ,III Varick Structured Asset Fund Fitch B B-- Class A2 $300 01/09/00 Clinton Group asset-backed securities ,
o1/05/06 III Bristol CDO I . Fitch BB B Class B $30 10/11/02 Vanderbilt Cap Advisors asset-backed securities
01/05/06111EatonVanceCDO Moody's BI B2 Class II $4 25/08/99 Eaton Vance high-yield bonds
o1/05/06 III Eaton Vance CDO . Moody's Caa2 Ca Class III $16 25/08/99 Eaton Vance high-yield bonds ..
28/04/06+ Goldman Sachs AM CBO S&P AA+ AAA Class A $276 29/06/99 Goldman Sachs AM high-yield bonds ..•
28/04/06 + Goldman ,Sachs AM CBO S&P BB-- BB Class B $40 29/06/99 Goldman Sachs AM high-yield bonds C ~
27/04/06 +C-BASSCBOIX S&P AA AAA Class B $10 24/03/04 C-BASS asset-backed securities ~ ~
27/04Iq6+c:~BASSCBO IX
27/04/06 + CcBASSCBO IX
27/04/06+ FC, CBOII .
S&P
S&P
S&P
A
BBB
A2.
AA
A
Aaa
ClassC
Class D
Class Aunwrapped
$12
$14
$670
24/03/04
24/03/04
09/09/9S
C-BASS
C-BASS
Prudentiallnv Mgmnt
asset-backed securities
asset-backed securities
high-yield bonds
» )i=
~ ~

'"
27/04/06 + Pilgrim CLO 1999-1 Fitch BB+ AAA Class C $10 30/11/99 ING Investments high-yield loans ..... .....
27/04/06 + Prima Capital 2005-1 Moody's Aa2 Aa I Class B $13.31 - Prima Mortgage IT asset-backed securities It' I '
27/04/06 +PriniaCapitaI2005-1 . M()ody's AI Aa3 Class C $12.28 - Prima Mortgage IT asset-backed securities ~ Ut
24/04/06 +AllianceCollateralized Holdings S&P Baa3 B2 Class A2 $144 30/1 0/97 Alliance Cap Management high-yield bonds :: ::
24/04/06+ VarickStruetured Asset Fund S&P B+ CCC Class A I $50 01/09/00 Clinton Group asset-backed securities ..... "'"
24/04/06111 Varick Structured Asset Fund . S&P B+ CCC Class A2 $300 01/09/00 Clinton Group asset-backed securities ~ ~
~ ~
21/04/06111 MLCBOXIV Series I998-E&P-1
21/04/06111 M~ CBO XIV Series I998-E&P-1
19I04/06+C()liseum Funding
S&P
S&P
Mo()dy's
CC
CC
Aa2
D
D
Aa I
CiassA2
Class A3
ClassAI
$67
$50
$485
08/04/98
08/04/98
19/07/00
Prudential Securities
Prudential Securities
Travelers AM
high-yield bonds
high-yield bonds
investment-grade bonds
»
o:'J =
)i
,IS/04/06. IfI Stony Hill, CDO I S&P A AA Class A3 $24 25103199 Babson Capital high-yield bonds :I> :I>
17/04/06+ Canyon Capital CDO 2002-1 S&PBBB A--' Class B $11.1 19/12/02 Canyon Capital Advisors high-yield loans (It Ut
17/04/06+ Canyon Capital CD02002-1 S&P BB BB+ Class C $11.2 19/12/02 Canyon Capital Advisors high-yield loans m rn
. '. . .... •....... .......• , Cl ~
~ I Sources: MiJody's,Stondard & Poor's, Fitch~ Fora more complete listing visit www.creditflux.com ~ ~
.......
~
~
:. ~-<S-'.':~· . 'l'..
-c.:.~,,_~-,:-,:;:'~ •

,,' j

Date . Portfolio name Agency From To Vehicle Series Tranche Size Trade date ,
08/05/2006 ~SEA COO 2003-3 Moody's.. .' Aa2 SEA COO 2003-3 €15.9 27104/06
26/0412006~BE:1ryIFinance 2006-1 Fitch AAA AA+ Beryl. Finance 2006-1 $49.7 <,
21/04/2006~COMO II Fitch . AAA BBB- Xelo III 2005 (Como II) - €70
21l04/2006~Sea2004-1 Moody's Aal Aa2 SEA COO 2004-1 €IO
14/04/2006/f1Andante 2 S&P AA AA+ Andante 2 CiassA2 ¥I,300
14/04/2006/f1Andante2 S&P AA AA+ Andante 2 Class AI ¥I,700
14/04/2006/f1Aska S&P A AAA Skylark 2004-2 Class 0 ¥I,500
14/0412006 /fIAska . .. S&PAA AAA Skylark 2004"2 Class C ¥I,500
14/04/200§+Omega CapitallnvestmE:1nts 10 S&P A. A- Omega Capital Inv 10 Class 13 ¥3100
13/04/2006 ~jarrahTrust I S&P AA AA- Jarrah. Trust I A$25
13/04/2006 ~NE:1wpC)rt... .. . S&P AM AA+ Corsair Oersey) No2 72 A$135 07102/06
13/04/2006:+TIGERS2006~X. . S&P AAA M+ Starts (Irelarid) 2006-3 A$40 26/01/06
11/04/2006 ~ Corsair Oersey) No 269
I I/04/2006+jacaranda,Trust· ' . . .
1,1/04/~006 +Morgan Sta~leyACES2.005~15 S&P
S&P
S&P
AA-
AM
A
AA
CorsairOersey)No 269
jacaranda Trust 17 Class Series I
$68.4
A$12
,--,lea
J>
AAA AA+ Mqrgan. Stanley ACES 2005-15 Class II Sec ••_.•.•.•.-.1
>.--:-:,"

11/04/2006~Morgan Stanley ACES 2005-15 S&P

~_-' '1

M AA-- Morgan Stanley ACES 2005-15 Class iliA ,.J" ''-'.~J

I 1/04/2006 ~ Morgan Stanley ACES 2005-15 S&P AA AA- Morgan Stanley ACES 2005-15 Class 11113
11/04/2006~Shield24,' . , S&P M- A Shield '24 A$13 '-.'j
I 1/04/2006 ~ Zenesis S&P AAA AA- Zenesis SPC 2005-1 $29.65 ,".
>.
10/04/2006/f1DaphneFinance I Moody's A2 AI -Class 0 €12.25 07105103
IO/04/2006,/fIQaphne Finance I MC)qdy's Aa2 Aa I -Class CI €30.3 07105103
10/04/2006/f1 Daphne Finance. 1 Moody's AI Aa3 -Class C2 €15 07105103
10/04/2006+ EthicalCp() OE:1rsey) Nol
07/04/200,6 +Archstqne·1
07104/2006 ~Archstone I
'.,
S&P
S&P
S&P
A+
A
A
AA
A-
A-
Erhica,ICDO Oersey) No ,I
Archsrone I
Archstone I
2005
2005
2 -
Class 2005-C2
Class 2005-C 1
A$50
€5
$20.3
'~"::7:l;";1It
07/04/2()06~Ba.rton·SpringsCD020()S~1 S&P
07104/2006~B;lrtql1 SpringsCD02005-1 S&P
AA+
AA+
AA'-
AA-
Barton Springs
Bartpn Springs
2005" I
2005-1
Class C2
Class AI
$17
$1 --_U'::~rn
07/04/2006~BartonSpringsCD02005-1 S&P AA+ AA- Barton Springs 2005-1 C1assA2 $1
07104/2006 ~Bartqn SpringsCDO 2005~1 Ss,P 131313+ BBB- Ba,rton Springs 2005-1 Class C3 $5 ::;=; CC
0'7l04/2006~BartonSprings CD02005-1 S&P 1313+ 1313 Barton Springs 2005-1 Class 02 $4.3 ';'cl ~ ~
07104/2006 ~BartqnSprings COO 2005-1
~~
S&P A+ 131313+ Barton Springs 2005-1 Class 131 $19
07/04/2006+Bacton5pringsCDO 2005"1 S&P A+ 131313+ Barton Springs 2005-1 Class 132 $17
07104/2Q06~Bartol1 Springs,CDO 2005-1 S&P AA+ AA- Barton Springs 2005-1 Class CI $17
+
07104/2006 Bacton Springs CD02005"1
07104/2006 ~Blue Point COO 2005-1
07104IiO()6~BlueP6irirC:D02005-1
S&P
S&P
S&P
1313+
131313
BBB
1313
1313+
1313+
BactonSprings
Blue Point
BluePoint
2005-1
2005-1
2005-1
Class 01
Class 0-1
,Class 0-2
$1
"''''
J>J>
."."
I'l"Ini
07104/2006 ~Blue Point COO 2005-1 S&P A 131313 Blue Point 2005-1 Class C-I
07/04/2.6()6+BlueP()intCD02005~1 CC

.-.
S&P A BBB BluePoint 2005-1 Class C-2
07104/2006 ~Blue Point COO 2005-2
07/0412006~Blu~P6intCbO 2005-2
S&P
S&P A
BBB BB+
BBB
Blue Point
Blue Point
2005-2
2005-2
Class 0
Class C ~~
07104/2006 ~jULIA S&P Aaa Aa3 Class 1 $97.5 20101/04 ~~
r:
::::I
to
~
07/04/2006+JULIA
07104/2006 ~jULIA
+
07/04/2006 Morgan Stanley ACES
07104/2006 ~ Morgan Stanley ACES
S&P
S&P
S&P
S&P
Baa I
Aa2
AAA
AAA
Baa3
A2
AA+
AA-
Morgan Stanley ACES 2005-22
Morgan Stanley ACES 2005-22
Class III
Class II
Class II
Class lilA
$29.25
$34.125
¥3,OOO
$1
20101/04
21/01/04
"''''
:r>J>
"'."
nIni
o 07104/2006+ MorganStanley ACES .. S&P.. .....M . ..' AA- Morgan StanleY ACES 2005~22 Class 11113 ¥I,OOO CC
o() $ource:Moody's,Stondord & Poor's~ fitch; For a more complete listing, see www.c;rediflux.com
~~
l.o
s:::::I
(I)
...,
Recel1tdefaults
10 May 06
c:ompany
PTc:Alliancl;l
Dqmicile
USA industrial n/a
Event
files for chapter I I
Latest investment grade
- ccc
<i"a_-2~ __ ~":; •• ~~:

3=!
>-:,",,,,.j:::~)'
~.

:
.. .. " :;
c~s .. ~·;;,./

,~

)"!'~
0
0 08 May 06 Silicon Gr'aphics USA computing 339 files for chapter I I -
~ 13 Apr 96 USA Commercial. Mortgage USA financial n/a files for chapter I I -
IOApr'06 Global Home Products USA industrial 381 files for chapter II - . ,

28 Mar 96 OCA USA healthcare 196 files for chapter I I - ' ,

19 Mar'06 Oneida USA industrial 332 files for chapter I I -
16 Mar 06 APXLogi~tics USA transport 100 files for chapter I I -
01 Mar 06
10 Feb 06
26 Jan.06
25Jan 06
12 Jan06
Dana
JL French Automotive
BlueBird
Performance Transportation. Serv
Musicland
USA
USA
USA
USA
USA
automotive
automotive
automotive
automotive
retail
2,584
742
215
r)/a
200
misses coupon
files for chapter I I
files for chapter I I
files for chapter I I bankruptcy
files for chapter II
15/09/05
-
-
-
-
i "3>
. . . :a:I
03 Jan06 Pliant USA packaging 320 files for chapter I I - - ,
31 Dec 05

07 Nov 05
01 Nov 05
Megasteel
2.0 Dec()5 ,Calpine
09 Dec OS Vail del' Hoop
Flyi
Curative Health Services
Malaysia
USA
Netherla.nds
USA
USA
metals
energy
financial
transport
health care
400
17,000
456
379
214
misses principal payment
files for chapter I I
emergency arrangement granted
files for chapter I I
misses coupon
-
19/12/0 I
-
-
-
,~ :J>
. ,'<'"
J '

,- ': .:.;,~_. :.- -~ j

28 Oct05
17 Oct 05
14 Oct 05
McLeod USA
RefCo
O'Sullivan Industries
USA
USA
USA
telecoms
financial
industrial
777
1;000
255
files for chapter II bankruptcy
files for chapter I I
files for chapter II bankruptcy
-
-
-
,.\lit ' ,
08.o.ct05
28 Sep05
26. Sep 05
~3Sep OS
Delphi
Charter Communications
Heating Oil Partners
Entergy New Orlean~
USA
USA
USA
USA
automotive
telecoms
energy
energy
22,166
1,100
103
200
files for chapter II bankruptcy
debt restructuring completed
files for chapter I I bankruptcy
files for chapter I I bankruptcy
08/03/05
-
-
- L:~~
!.-'
<lin
... ~- .~. j
~

.,~ IC IC
19 Sep 05 Fbamex USA industrial 1,500 files for chapter II bankruptcy - ,~: ~ ~
14.SepOS Delta Air Lines USA transport 13,000 files for chapter I I bankruptcy 20/09/01 ,< "'I "'I
IOSep05 NorthwestAirlines USA transport 8,137 misses equipment trust certificate payments -
~)i
-
19 Aug 05
IS,A.\lgOS
Ol:l Aug 05
Russell-Stanley
Foamex
Anchor Glass
USA
USA
USA
industrial
industrial
industrial
100
1,500
410
files for chapter I I bankruptcy
misses principal payment
.files for chapter I I bankruptcy
-
-
==
3>3>
&It«n
31 Jul05 Allied·Holdings USA automotive 231 files for chapter II bankruptcy - mm
15 Jul 05 O'Sullivan Industries USA industrial 255 misses coupon - ICIC
~OJun05 Transener Argentina energy 570 debt restni'cturing -
24Jun05
15Ju n 9 5
Latin America Online
Salton
USA
USA
media
industrial
182
457
files for bankruptcy
misses coupon
-
-
~~
)i)i
08 Jun 05

17May 05
China Aviation Oil
27 May 05 Jarvis
Collins & Aikman
Singapore
UK
USA
energy
enginel;lring
automotive
555
510
.1,600
debt restructuring
debt restructuring
files for chapter I I bankruptcy
-
-
-
==
3>3>
«n«n
26AprOS. l'1eri~iartAutornotive•. Systems USA ,a\ltomotive 600 files for chapter II bankruptcy - mm
..., ~C!4rces:c;ol71p~QY'filings'N10'ody~s~Sta"d~rr:J&Poor's;Fitth;pres{reports,ThislistingiSbosedorifJlJbliclyavi:JiIClbJeinro"lrlati~I1'andis
'not definitive. It is meant to provide a useful memo of recently. reported ICIC
W
cr'edit~venis, butdlistingshoulqnotbe regarcJed as evidence thatanentityha~in{act triggered acrediteVentMostlistings (or restru(;turings relate to the date of announcement rather than completion.
~~
~
- _.- . •'..II1II
.Illo
'·v
.:D!
Tranche Trade Protection Portfolio No. of No.. of Latestrating**
date buyer type entitities defaults M 5 F Description S&PSROC*
Bistro 2000-6 Class A 29/06/00 Credit Lyonnais IC I AI AA--
Natix Class A 30/06/00 Natexis Banques Pop. IC 121 3 Aaa AAA balance sheet synthetic 103.1
S5ala SynthElticU Class A 14/12/00 Intesa BCI IC 54 3 B2 B balance sheet synthetic 97.3

:~
Epoch 2000 Class I 20/12100 Morgan Stanley IC 250 12 BB BBB static corporate pool
Marylebqne Road CBOI CiassA2 29112100 Abbey National IC 3 Baa2 BBB- balance sheet synthetic
Riviera Finance J. Class B 13/03/01 BNP Paribas IC 50 3 Ba3 AA- static corporate pool 97.8
Torus ..... Class.A 23/03/01 TD Securities IC 300 6 Baa3 BBB+ 99.6
ReponI5·. ClassB 21105/01 Deutsche Bank IC 120 I CCC- static corporate pool 97.6
Parthenon CSO 2001-2 Class B 17107101 Bear Stearns IC 4 Caal B+
tDO MiiSt~r Investll1ents Class B 21/08/01 BNP Paribas IC 67 I Baa3 AA 100.0
E.iko~ II CiassA3 19/12/01 Mizuho HC 101 I BB+ managed high yield pool 99.5
o

·ia:l
North St Re(Llnked ClassA 15/03/02 UBSWarburg AAA SF AAA managed ABS portfolio
Notes 2002""
Jc:>~ondll.lnvestmentS ..•. Class B A3 AA- IC 66 o Aal AA- 103.6
HightS J2 .(Hellx.CapitaI2002'12) Class B Aa3 A+ IC 130 3 Ba3 BB static corporate pool
Nll,!"a~~c:BO . • •. .....• ClassC A2 A- HC 73 o A2 A- 104.1
Cheyne In;~stme~t GhicieCDOICIass II Ail2 AA IC o Aal AA managed corporate pool

~
Petra C~pital II . Cla~sB Aa2 IC o Aa3 AAA AAA static corporate pool 101.3
Phoenix 2002-2 Class B AA IC 200 2 AA static corporate pool 100.9
o
U~per Thames ... •
BroadStreet Finance
ClassA
·ClassA
AAA
AM
IC
ICI52 o
o
Aaa AAA
AAA
static corporate pool 103.6
102.9 ..
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changes onpreviousmonth.sh<;>wn in orange. So.urces:arrangers, Moody's, Stand~rd & Poor's, Fitch

People influx
RBS hires correlation
trading head
Royal Bank of Scotland has made
two senior hires to its credit trading
business, RBS officials confirm.
Matt Reader joins as head of cor-
relation trading. Based in London,
he will report to Vincent Dahin-
den, global head of structured credit
products. Reader's role is thought
to encompass some of the respon-
sibilities formerly held by Sanjeev
Gupta, who left RBS in February.
Reader previously worked at
DBS, where he was an executive di-
rector in the bank's structured credit
trading team. Before joining DBS
he worked at Lehman Brothers.
Meanwhile, Thomas Duetoft
has joined RBS as head ofloan
trading and distribution. Based in
London he will report jointly to
Stewart Booth, global head of cred-
it trading and David Bassett, global
head ofloan markets. His job will
be to build on RBS's large presence
in the primary market by beefing up
its activities in the secondary loan
market. His remit will include loan
trading and sales for investment
grade and leveraged loans, as well as
all associated loan-based derivatives.
Duetoft previously traded high-
yield loans at Dresdner Kleinwort
Wasserstein, where he was a man-
aging director. He is widely credited
with having co-founded Dresdner's
European loan trading efforts
alongside TomJohanessen.
RBS has recently seen a
number of personnel changes within
its structured credit business. Taro
Goto, former head of consumer
and industrial flow credit trading,
is thought to be moving to an
executive director and senior trader
role at Lehman Brothers. Industry
sources speculate that he will head
up the European arm of Lehman's
principal finance group. A spokes-
person at Lehman declines com-
ment.
As Creditjlux goes to press it
has emerged that Scott Eaton has
resigned as head of principal finance
at RBS in London - possibly to join
ABN Amro. DAN ALDERSON
I June 2006
GSC hires portfolio
manager
New Jersey-headquartered alterna-
tive asset manager GSC Partners
has announced the appointment of
Thomas Dial as vice-president and
portfolio manager in its structured
finance group. Based at the firm's
New York office, Dial will be re-
sponsible for structuring CDOs and
whole loan securitisations.
esc
Dial joins Partners from
Natexis Banques Populaires, where
he was a senior member of the New
York-based CDO team, managing
a portfolio of mezzanine invest-
ments that included corporate cash
flow, market value and asset-backed
CDOs. Before that he was an ex-
ecutive director in the asset securi-
tisation group at CIBC, responsible
for CDO structuring and conduit
securitisations.
esc Partners reckons to have
over $9 billion of assets under man-
agement. It focuses on complex
credit-driven investment strategies.
These include control distressed
debt, where esc invests in middle-
market companies with a view to
obtaining control through purchas-
ing debt rather than equity.
The investment manager also
specialises in corporate credit,
European mezzanine lending and
structured finance. The structured
finance group manages a mortgage
reit, hedge fund and several ABS
CDOs, with assets totalling $2.3
billion, according toesc figures.
The group's hedge fund,esc Eliot
Bridge Master Fund 1, trades struc-
tured credit, ABS and CDO deriva-
tives. DA
Halcyon hires from
Prudential 1M
Fund manager Halcyon Asset
Management has announced the
hire of Ross Smead to head a new
CLO-focused business. Based in
New York, Smead will be charged
with expanding the firm's initiatives
in the CLO market, to include con-
structing and managing a number
ofCLOs.
Credit
Short form
C..edit t ..ade..s qUit
Wachovia
Wachovia has lost credit trad-
ing heads from both its US and
European operations. Sean Bon-
ner, co-head of credit trading in
the bank's Charlotte office, and
Stephen Mills, head of European
credit trading, have both left the
bank. Wachovia confirms the
departures but declines to make
further comment.
Bonner and Mills have been at
Wachovia for over two years,
having both joined from Bank
of America in 2003. Bonner
was head of US credit deriva-
tives trading at Bank of America
in New York, while Mills was a
senior credit derivatives trader in
London.
Ba..cap hi..es t ...ade..s
BarclaysCapital is understood
to have hired Ed Selby asa cpr"
relation trader. Based in London,
he will report to DevRoy, head
ofc:orrelation trading. Bardays
could not comment on the hire.
Selby join~frbmMerrilrl)'nch
in London, where he focused on
trading exotic credit derivatives
including·credit options.
Barclays has also hired Vallisha
Patel to its flowtrading desk
frorri·Credit Suisse. Based in
London, she joins as a desk analyst
reportingtoKaiSeeger, head of
credit derivatives flow trading.
O ....ick pa..tne..s
mCtvetoA&()
~nen &O.,eryhaspoad1edtwo
partnersspedalising inCDOs
from rival law firm Orrick
Herrington.• &Sutcliffe.
Howard Goldwasser and •
Lawton Camp were partners
in Orrick's New York structured
finance.·practice.·Goldwasser
movedbaC:k tothe: US only last
year, havil1gservec:l.asrnanagihg
partnehriOrrlck's Tokyo office
and head ofitsAsian structured
finance businesS.
25
Credit

People in flux
Last month the firm priced its
debut CDO, Halcyon Structured
Asset Management CLO I, with
Deutsche Bank as arranger.
Smead joins from Prudential
Investment Management, where
he worked for 21 years and was
most recently a managing director,
portfolio manager and head ofPru-
dential's bank loan desk. Prudential
manages a number of CDOs backed
by high-yield loans and bonds, such
as the Dryden series of deals.
The move follows other recent
structured credit initiatives by Hal-
cyon. In April the firm hired Rajesh
Kumar from CDO-of-CDOs
specialist Zais Group as manag-
ing principal. His job is to create
and manage CDOs-squared, ABS
CDOs and other securitised deals.
Halcyon, which reckons to have
$3.7 billion under management, has
also announced the appointment of
Aaron Goldberg as chief financial emerging credit derivatives market
officer. He previously worked at in the late 1990s as a loan portfolio
BlueMountain Capital Manage- manager for Chase.
ment. Goldberg replaces Jim From 2000 to 2002 he worked
Pasquarelli, who continues to work for Lehman Brothers in London
with Halcyon as a senior consultant. in structured credit trading and
DA repackaging, and more recently
served as head of CDOs at Barc1ays
Reoch Credit adds Capital in London. He was also
closely involved in the Isda discus-
market veteran sions on issues such as restructuring
Veteran CDO and credit derivatives which eventually led to the crea-
specialist Paul Varotsis has teamed tion of the 2003 credit derivative
up with well-known credit deriva- definitions, serving as the European
tives consultant Robert Reoch. He chairman of that documentation
has joined Reoch Credit Partners, committee.
one of the two separate credit de- "Paul has a great regulatory and
rivative consultancies that recently legal background as well as superb
emerged following the demerger business building skills," says Re-
of Reoch Consulting (the other och. ''As someone who has spent the
being the Derivatives Consulting past six or seven years involved in
Group led byJonathan Davies and structured credit, he is a great fit for
Cameron Munro). our business platform."
Varotsis became involved in the Reoch, one of two founders of

Contacts directory
To advertise call +44 (0)20 7253 4878

Why advertise jobs in a niche market publication like Creditflux

We asked: when you could advertise on a mass market job site?

I prdtr fJ. ItW tJec.tllort [VS' tD trDlli"J thrDuJh 500 ustltS'S' DHtS'!
They 1.11(.. ht\.v(.. ht\.Dl t\. st(..t\.Dl~ tvie.ld(.. of (..llwlw..t t\.pplie.Mlts silo\.U w(.. V't\.lo\.
answered: thoS(.. t\.Dls ilo\. tv'OV(..Mbv t\.lo\ol .Dtu.Mbv. ~OIA e.t\.lo\ s~ w(.. t\.V"(.. V(..V"~
ht\.pp~ with OlAV" t\.DlV(..V"fiSilo\.~ ilo\. e..V'Ullitfl.w t\.lo\ol will olo MOV'(.. w~ W(..
ht\.v(.. plt\.uol th(..s(.. e.t\.lo\oliolt\.t(..s.
It's quality not quantity. Advertise your credit derivatives and structured credit jobs in Creditflux.
Readership: 50% Europe, 40% USA and 10% rest of the world. Phone +44 20 7253 4878

elliott ross
MANTIS PARTNERS P
~
•
associates
('~ . . cuH~C~atclifo~thQfllObal tll1;1nd,llltl~rkt.·l.:>
IE EXCHANGE
To find out why our approach works " . . Consulting Group
Connected...
Contact Alex Horlock
Specialist credit market recruiters
Credit Market Specialists alex@elliottross.com
(cash and structured products)
+ 44 (0)20 7847 8800
Contact Russell Clarke or www.elliottross.com
Sandrine Rossi in confidence
Contact Ikenna (roche
+44 (0)20 7448 4654 +44 20 7929 2383
mantispartners.com Elliott Ross is a specialist headhunting
and pre-search consultancy serving creditflux@exchangeconsulting.com
the global financial markets www.exchangeconsulting.com

26 I June 2006

UK
Senior credit CPPI structurer - London - £ to attract
the best
London office of a leading global investment bank at the
vanguard of Credit CPPI has an urgent requirement for an
experienced structurer to join the growing team.
You will be joining a well-established platform, honing
your technical skills and leveraging those of the highly
innovative and accomplished professionals with whom you'll
be working closely.
The ideal candidate will be currently living in London or
environs (or willing to relocate), have impeccable academics,
and at least four years' experience of CPPI structuring
experience with a demonstrable track record and likely be in
a top sell-side house. Expert knowledge of credit is essential
although those with a background in fund CPPI or experience
gained in an investment management environment will be
considered. Additional European languages preferred.
Confidentiality assured.
Steven Dowd
Sandton Group
+44 207 464 4455
sdowd@sandtongroup.com
Researcher - leading credit derivatives & structured
credit journal - London
Creditflux is seeking a researcher to maintain and expand its
extensive database of financial deals. The work involves:
extracting information from press releases and other sources,
with follow-up telephone contact where necessary,
inputting information into databases, generating reports and
queries for publication
improving systems for presenting and publishing data
You need analytical and numerical skills, as well as a sharp
eye for detail. Knowledge of finance and/or databases would
be an advantage. We offer good prospects for advancement
in a fast-growing company. Based in Clerkenwell, London.
Mike Peterson
Creditflux
+442072539510
editor@creditflux.com
www.creditflux.com
Non-agency CMO (jumbo or Alt-A, fixed or hybrid,
senior or subs experience) traders and structurers,
associate to managing director levels - New York
Top tier investment banks seek multiple non-agency CMO
(jumbo or Alt-A, fixed or hybrid, Senior or Subs experience)
traders and structurers. Must have experience doing same at
an investment bank or buy-side firm.
Nick Bristol
Bristol Consulting
+1 2124065595 xl12
nick@bristol-consulting.com
www.bristol-consulting.com
EM local currency trader, VP to director - New York
Premier hedge fund seeks quantitative EM Local Currency
Trader. Must have experience doing same at a top proprietary
trading platform or hedge fund.
Nick Bristol
Bristol Consulting
+1 2124065595 xl12
nick@bristol-consulting.com
www.bristol-consulting.com
I June 2006
Credit
J
Securitisation software - financial engineer - London
- competitive salary + benefits
Wall Street Analytics, a leading financial software company,
is seeking highly motivated individuals for client support
positions within the London office.
WSA is looking for recent university graduates as well as
candidates with experience. Applicants with backgrounds in
any quantitative discipline, together with a keen interest in
finance, are encouraged to apply.
Candidates should possess strong analytical and computer
skills, as well as excellent communication and organisational
abilities. Applicants must be detail oriented, dynamic and
dependable. We are looking for very fast learners who
possess the confidence to support and interact with multiple
high-profile clients.
The position involves learning WSA's software products,
resolving customer support issues, responding to client
questions, and reverse engineering the cashflows of complex
structured finance instruments, including collateralised debt
obligations (COOs) and mortgage-backed securities (MBS).
This is a full time, permanent position.
Competitive salary + benefits.
Please submit your CV quoting reference CDR/0506.
Careers@wallstreetuk.com
Wall Street Analytics
www.wallstreetuk.com
US
Traders and originators for structured opportunistic/
principal finance/private equity/hedge fund group,
associate to managing director levels - New York
Top tier investment bank seeks traders and originators for its
structured opportunistic/principal finance/private equity~
hedge fund group, focusing on alternative asset classes in
structured products across all sectors from debt to mezzanine
to equity.
Must have relevant work experience.
Nick Bristol
Bristol Consulting
+1 2124065595 xl12
nick@bristol-consulting.com
www.bristol-consulting.com
Fund derivatives IR/commodities/FX trader/
structurer, associate to director levels - New York
Top tier investment bank seeks fund derivatives IR/
commodities/FX trader/structurer. Must have experience
doing same at a top tier investment bank or fund of funds
firm.
Bill Ebinger
Bristol Consulting
+1 2124065595 xlll
bill@bristol-consulting.com
www.bristol-consulting.com
Bankers/structurers, CDO of ABS, CLO, or CDO
of CMBS, associate to director levels - New York
Top investment banks seek bankers/structurers, focusing on
one of the following: COO of ABS; CLO; or COO of CMBS.
Must have experience doing same at an investment bank.
Nick Bristol
Bristol Consulting
+1 2124065595 xl12
nick@bristol-consulting.com
www.bristol-consulting.com
27
 Credit

People influx
Reoch Credit Partners along with
quantitative specialist James Wood,
says the company's business falls
into three parts.
One area is strategic advisory
for companies looking to enter the
credit derivatives market or increase
their activities. Another consists of
writing code for quantitative models
used in valuing credit derivatives
as well as verifying client's exist-
ing models. The third leg consists
of training, dispute resolution and
expert witness work.
MICHAEL PETERSON
Structured credit
veteran quits
Ixis CIB
French bank Ixis CIB lost one of
its most senior structured credit spe-
cialists last month after Stephane
Kourganoff, deputy head of struc-
tured credit and securitisation, left
the firm. Kourganoff has decided to
leave for personal reasons and has
no immediate plans to join an-
other bank. "I have no regrets," says
Kourganoff, who has spent 15 years
at the state-owned institution. "It
is a good time to move on and take
some time off from the market."
Jean-Paul Oudet, head of
credit and financing at Ixis CIB,
says no decision has yet been made
on how Kourganoff will be replaced.
"Stephane has a combination of
qualities that were very much appre-
ciated within Ixis and many areas of
the fixed income business owe a lot
to him," says Oudet. "He was not
only a good front-office manager but
was also very competent in many
back-office issues that are key to the
success of the business."
Before moving into the struc-
tured credit area, Kourganoff was
global head of interest rate deriva-
tives at the bank. Prior to joining
CDC - as it was then called - he
worked in derivative marketing and
origination at Credit Lyonnais.
Jean-Michel Beacco, who
joined Ixis CIB last year from
Calyon, remains as head of struc-
tured credit and securitisation.
Ixis is planning to merge with
another French bank, Natexis, later
this year. This is likely to lead to
further changes in the organisation
ofits structured credit business,
although details of the integration
have yet to be finalised. Oudet says
Kourganoff's departure is uncon-
nected with the merger.
Natexis has some involvement
in the structured credit business,
particularly as a manager of cash-
flow CLOs. However, it is nowhere
near as active as Ixis, which has re-
cently become increasingly involved
as an arranger of synthetic CDOs,
credit CPPI transactions and other
structured credit products. MP

Bankers: subprime RMBS, prime, whole

loans, non-mortgage ABS, esoterics, or CMBS,
J
Structurers: subprime RMBS,prime, whole loans,
non-mortgage ABS, esoterics, or CMBS, associate to
associate to director levels - New York director levels - New York
Top investment banks seek Bankers/Structurers, focusing on Top investment banks seek structurers, focusing on one of
one of the following: subprime RMBS; prime; whole loans; the following: subprime RMBS; prime; whole loans; non-
non-mortgage ABS; Esoterics; or mortgage ABS; esoterics; or CMBS. Must have experience
CMBS. Must have experience doing same at an investment doing same at an investment bank.
bank. Nick Bristol
Nick Bristol Bristol Consulting
Bristol Consulting +1 2124065595 xl12
+1 212 4065595 x112 nick@bristol-consulting.com
nick@bristol-consulting.com www.bristol-consulting.com
www.bristol-consulting.com

Senior ABS correlation trader - New York
Our client, a tier-l US house seeks a senior ABS
correlation trader to develop the US franchise
of their global correlation business.
Coming previously from a correlation background from a top-
tier credit firm, you will ideally have a thorough understanding
of the expanding area of ABS correlation products.
Although technical expertise is sought, the opportunity
would suit a franchise friendly business builder who has
the ability to manage resources and develop a platform
within one of the most dynamic areas within correlation.
Hugo Ryder - Kaizen Partnershp - +44 20 7743 6170

ASIA PACIFIC Structured credit/credit derivative structurers/

CMBS/real estate banker/originator or structurer, traders/product managers - Asia
associate to VP levels - Hong Kong Top investment bank seeks structured credit/credit derivative
Top tier investment bank seeks CMBS or real estate banker or structurers, traders or product managers, a hybrid of the
structurer. MUST SPEAK MANDARIN FLUENTLY! Must have three is best. Must have experience in structured credit/credit
CMBS/real estate lending experience from an investment bank. derivatives doing same at a top tier investment bank.
Nick Bristol Bill Ebinger
Bristol Consulting, New York Bristol Consulting, New York
+1 212 406 5595 x112 +12124065595 x111
nick@bristol-consulting.com bill@bristol-consulting.com
www.bristol-consulting.com www.bristol-consulting.com

18 I June 1006

People influx
Deerfield hires for
London business
Deerfield Capital Management
is preparing to open an office in
London this month, and has hired
Jerry Donohue from Henderson
Global Investors to help spearhead
its European efforts. The Rosemont,
Illinois-based COO and hedge fund
management firm confirms that
Donohue is joining, but declines to
give details of his precise role.
Donohue has worked as a CDO
portfolio manager at London-based
Henderson since 2003. He had
particular responsibility for man-
agement of Henderson's synthetic
CDOs - numbering 10 at the time
of his departure.
Prior to Henderson, he spent
four years at Axa Investment Man-
agers, where he was a director in
fixed income. He has been working
in the structured finance, loans and
asset-backed securities areas for the
past nine years. Earlier in his career
Donohue spent a stint working at
the US Securities and Exchange
Commission.
Like Henderson, Deerfield is a
major manager of CDOs. CDO as-
sets under management total $10.5
billion. The firm currently manages
seven cashflow CDOs of ABS, eight
CLOs and five investment-grade
corporate CDOs.
Like other US managers that
have been opening shop in Europe,
CLOs are likely to be high on
Deerfield's list of priorities for the
new business, together with CDOs
ofABS. The firm launched three
CLOs and four CDOs of ABS in
the US market last year.
Deerfield also manages a $930
million hedge fund which focuses
on fixed income arbitrage strategies
involving mainly government bonds.
Donohue's departure comes
shortly after Jim Irvine's arrival at
Henderson from JP Morgan/Bank
One. Irvine replaced Dominic
Powell as head of the CDO busi-
ness. Powell is setting up a CDO
management business at JP Morgan
Asset Management.
EUANHAGGER
I lune 2006
Bank of America
takes on traders
Bank ofAmerica has announced
several appointments to its Euro-
pean credit spread sales and trading
platform, which is headed by
Charlie Cho.
Marc Geffroy has joined as
a principal and investment-grade
trader. He was previously a senior
credit trader at Societe Generale.
Greg Lake joins as a principal in
credit sales from Caxton Europe
Asset Management.
Cho's desk has also hired
Alaric Hu and Rebecca Clements
as desk analysts. Hu joins from
Stratton Street Capital as a princi-
pal and senior desk analyst covering
TMT. Clements joins from WR
HuffAsset Management and will
cover industrials.
Meanwhile trader Loren
Remetta, salesman Robb
McGregor and analyst Dan
Colonna have transferred from
Bank ofAmerica's North American
trading operations. DAN ALDERSON
Rabo appoints head
of structuring group
in North America
Rabobank has hired Stan Strat-
ton as head of its structured client
solutions team for North America.
Based in New York he will report to
Sheldon Sussmann, head of capital
markets.
According to Rabobank, the
structured client solutions team
arranges CDOs, structures fixed
income and credit-linked structured
products, and engages in various
specialised financing activities.
Says Sussmann: "Stan is a high-
ly experienced structured products
banker with special expertise in ar-
ranging CDOs. We are pleased that
he will be leading our New York-
based team."
Stratton previously worked as
a director in structured credit at
Merrill Lynch Investment Manag-
ers in New Jersey. Before that he
was a managing director at Bank of
America in New York. DA
Credit
Short form
XLCA hires from S&P
XL Capital Assurance has
hired Lina Kharnak as a director
of its structured investment prod-
uct group. Based in New York, she
reports to SohailRasul, senior
managingdirector and head of the
structured investment product
group.
Kharnak previously worked
at Standard & Poor's in New
York,where she worked as a
direttorin its global CDO group·
since 1998.
BNPParibas hires
CDOhead
BNP Paribashashired Chris"
tos Dalliasas head of European
CDOs, working within the bank's
secu~itisationbusiness and· report"
ingto EurQpeansec:uritisation
hea.d Fabrice 5usini. He joins.
fr6niCredifSuissewhere he has
V(orkedsince20QO. He previously
worked for Bear Stearl'ls a.nd
l'IIe>rga.IlStal'lley.
.Top··Bear Stearns
o'ficialjoinscreclii;
hec:lgefund· ...
Stamford, Connecticut-based
hedge fllndmanager>Sailfish· Cap"
italisunderstood to have hired
Rohert Nefffroni Bear Stearns.
Neffwa.sseniormal1aging dir~c:­
tor and globa.l headofmarket risk
rnanagementat Bear-Stearns..
Neff was. a bondportfolio
managerat.MlItual·· Benefit.Life
·priAt; tq·joining Bear. Stearns.
.SailfisfiCapita.lwasJol'medlast
year~ySaJNaro,formerglobal
co:headoffixed. inc:omeat
. UBS
and Mark Fishman. former
.di.reC:torof fixedinC:omea.tSAC
Capita[.Sailfish. nasapproximate-
ly$I.8biHionulldermanagement.
Th~firm isalsor~portedto
. h:avehlredhlghyieJdspec:ialist
StElvenHornsteil'lasasenior ..
portf&liomanager.·frQI11 Pine-
woodCapH:al Partl'lers.
29
 5TH ANNUAL

EUROPEAN CDO
October 18-20, 2006 Fairmont Hotel, Monte Carlo, Monaco
SUMMIT

The 5th Annual European COO Summit is a forum designed to familiarize institutional
investors with the world of collateral debt securities in the European market. This event will
provide a forum where broker/dealers, rating agencies, lawyers and accountants can learn
new techniques on how to maximize profits in this lucrative area of Asset-Backed Finance. An
in-depth review of recent regulatory changes, rating agency methodology, legal, tax and struc-
tural considerations will provide attendees with the tools necessary to stay one step ahead
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END WO[]W
Watching the Fed
In the past couple of years, credit
has begun to move to the main-
stream of alternative investment
management.
But there is a big difference be-
tween making an occasional punt on
a credit index and embracing credit
trading as a core strategy. One
manager that has recently pushed
into credit in a wholehearted way is
Citigroup's fixed income alterna-
tives group.
There are two reasons this team
should be taken seriously as a player
in credit. The first is sheer size.
The group manages $3 billion of
capital, which gives it assets under
management ofjust over $16 billion.
Around $370 million of that capital
is already dedicated to credit strate-
gies, with leverage ranging between
three and 10 times.
Besides credit trading, the
group is active across all the main
areas of fixed income including
residential and commercial mort-
gage-backed securities. One area
of particular strength is municipal
bonds, a market in which it is one of
the biggest players.
The second reason to regard the
Citigroup fixed income alternatives
group as a serious force is its invest-
ment in building a credible team.
The group began planning its move
into credit two years ago, and last
year hired two well-known names
from the credit business.
Jawahar Chirimar is the team's
head of structured assets and credit
trading. He was briefly chiefinvest-
ment officer at DKR Varick, a start-
up credit hedge fund, but is best
known as one of Lehman Brothers'
most senior credit traders. Most
recently, he headed up credit trading
for Lehman Brothers in Asia.
Another portfolio manager who
joined at around the same time is
Boris Rjavinski, who is a director
and senior portfolio manager for
credit trading. He previously worked
as a portfolio manager at General
Motors Asset Management, where
he managed a large structured credit
portfolio.
The fixed income alternatives
group - which last month changed
1 June 2006
its name from the structured alter-
native investments group - is part
of Citigroup Alternative Invest-
ments, a standalone business within
Citigroup.
There are two strands to the
fixed income alternatives group's
involvement in credit. The first is a
Citigroup Fixed Income
Alternatives Group
Perspective: asset manager
Preferred strategies: rela-
tive value, long/short directional,
capital structure arbitrage, curve
trading
Capital under management
in credit: $370 million
relative value strategy focusing on
investment grade structured credit
instruments. "We target a moderate
risk portfolio with average credit
quality of around single A," explains
Reaz Islam, managing director of
the fixed income alternatives group.
"Structured credit assets gener-
ally have wider spreads than more
mature securitised products. We
have the flexibility to go short as we
"This . strategy is positioned to
take advantageoftwo distinct
phases of the credit cycle;
Thefirstiswhen the red
stopstightening,··leadirigto
highervQlatility;The second
istheeventualwideningof
spreads"
deem it appropriate, but the focus is
on relative value -looking at how
much we get paid against the ex-
pected loss on that asset."
This strategy, which is leveraged
around 10 times, mostly involves
trading individual structured credit
assets. However, the group also uses
credit derivative indices to hedge
or, occasionally, to take an outright
short position. In addition, it is able
to trade index tranches.
Chirimar says that in spite of
the current tight spread levels, there
is still scope for attractive relative
value plays. "There are some inter-
Credit
esting trades to be made looking at
relative value between new issues
and the secondary market," he says.
This structured credit strategy
is run as part of the team's multi-
strategy fixed income fund, which
is designed as a core investment for
clients and is benchmarked against
the Lehman Aggregate index. "The
multi-strategy fund is built to sus-
tain quite a lot of stress in the mar-
ket," says Islam. "It can take sub-
stantial movements in interest rates,
curves and credit." Since inception,
the fund has returned around 7%
a year on average with volatility of
some 4.5%.
The second element of the busi-
ness is a long-short strategy which
can delve further down the credit
spectrum to the single-B area. This
is currently being run solely using
Citigroup's own capital, but is ex-
pected to be opened up to outside
investors in time.
The second strategy also makes
use of single-name, credit index
trades and index tranches. Specific
trading strategies can include long/
short directional plays, capital struc-
ture arbitrage, long/short portfolio
or index trades, and curve trading.
"This is a time-sensitive strat-
egy positioned to take advantage
of two distinct phases of the credit
cycle," says Islam. "The first phase
is when the Fed stops tightening.
This will lead to higher volatility
initially and relative value opportu-
nities across credit, mortgages and
municipal bonds. The second phase
is the eventual widening of spreads
on structured assets. This structure
gives us complete flexibility to take
advantage of that spread widening."
The group was set up in 1995
and currently has a total of36 in-
vestment professionals on staff. Its
investment philosophy and its re-
lationship with clients mean it has
some similarities to a CDO manag-
er, particularly in terms of long-term
funding. "We provide our clients
with more liquidity than they would
get investing in a CDO," says Islam.
"But there are restrictions. Most of
our funds have a lock-up."
MICHAEL PETERSON
31
Credit
People influx
Klug reassembles
Uniqa CDO team at
new firm
Omicron Investment
Management, the start-up credit
hedge fund and CDO manager re-
cently bought by Calyon, has made
several hires as it gears up to launch
its first new deals.
The business was set up by
Marcus Klug and Manfred Ex-
enberger last September after they
quit Austrian insurer Uniqa.
In the past couple of months
the new company has hired most
members of the team that worked
together at UniqaAlternative
Investments. Most recently, port-
folio manager Philip Meier has
come on board, joining fellow ABS
portfolio managers Eva Kindl and
Harold Weiser.
Two other recent hires are
Horst Leonbacher and David
Blum, who run the risk and analyt-
ics departments respectively and
who carried out similar roles at
Uniqa.
The Vienna-based firm is work-
ing on two new cashflow CDOs.
One is a CDO of cashflow CDOs
which is likely to be similar to the
Stanton CDO I deal set up by the
team in 2003.
That deal is likely to target
mezzanine CDO securities, partic-
ularly CDOs ofABS and leveraged
loans. There is no word on which
bank will arrange the deal. Another
project in the pipeline is a CDO
of high-grade ABS. Both deals are
likely to come to fruition in the
second part of this year.
Meanwhile, Omicron already
has at least one management man-
date in place. "We are firing on
all cylinders," says Klug. The firm
manages a structured credit hedge
fund, the Uniq Opportunities Fund.
Omicron took over management of
that fund from Uniqa, and is look-
ing to raise new capital for it. The
firm has also secured the mandate
to take over management of Stanton
CDO I from Uniqa, although the
transfer of management has not
taken place yet.
32
Cambridge Place Investment
Management is set to take over
management of two other Uniqa
CDOs (see page 8).
MICHAEL PETERSON
DBRS poaches S&P
quants
Toronto-based rating agency
Dominion Bond Rating Service
is understood to have made several
major hires for a new European
structured finance business based in
London. Prize scalps include a team
of quants who developed Standard
& Poor's CDO ratings model.
S&P's London-based head of
analytics Kai Gilkes is understood
to be joining DBRS in London
along with two other members of
his team, NorbertJobst and Vic-
toriaJohnstone. DBRS could not
confirm this at the time Credit-
flux went to press.
These hires underline the im-
portance of structured credit to
DBRS's international expansion
plans. The firm has an established
CDO business in Toronto - chiefly
rating CDOs that go into Canadian
conduits. And it has recently hired
Chui Ng from Standard & Poor's
to set up a New York-based CDO
business.
DBRS's push into Europe is
being led by two other former S&P
executives. They are Apea Koran-
teng, who was most recently ABN
Amro's global head of structured
capital markets but who before that
served as one of the senior manag-
ers of S&P's European structured
finance business, and Mike Mac-
kenzie, who joined DBRS from in-
surance rating agency AM Best, but
who is also a former S&P employee.
Meanwhile, DBRS is also un-
derstood to have lost one of its most
senior existing CDO specialists.
ManroopJhooty, vice-president
in CDOs in the agency's Toronto
office, is understood to have re-
signed and is thought likely to join
Merrill Lynch's CDO business in
New York. A Merrill Lynch spokes-
person was unable to confirm the
appointment. MP
Short form
Lloyds TSB hires for
prop book
UK bank L10yds TsB is un-
derstood to have hired Alan
Packman from Dresdner
n
Kleinwort Wasserstein to run
its global structured finance prop
trading book in London. He will
report to Paul Lewitt, head of
credit trading. Lewitt is another
former Dresdner trader who
joined L10yds at the beginning of
this year.
The appointment of Packman,
who was a senior ABS trader and
syndicate manager at Dresdner,
is the latest in a series of hires at
L10yds TSB. The bank is building
up a credit trading and structured
credit business as part of the
financial markets division run by
Mark Preston.
Citigroupstructurer
goestoUBS
UBs has hired Alex Pierre
as a credit structurer. Based in
London, he will report to Paul
Czekalowski,.managing·direc-
tor and head ofstructured credit
derivatives.
Pierre joins fromCitigroup·in
London, where he was a director
in the European structured credit
products group;. Before that he
Was a credit derivatives structurer
atBN PParibas;
TradersjoinWestLB
German bank WestLB has hired
Efstathios. (Stathis) Margonis
and Antonio Gerneliaristo
its credit trading team. They will
be based in London. Both men
previously workedaf Dresdner
KleinwortWasserstein, where
Margonis was a director and
senior credit trader.
WestLB has also announced the
appoiotmentofWalid Assaf as
head of European emerging mar-
kef trading, reporting to credit
trading head Sean Tully.
I lune 2006