Deutsche Bank's London office has begun to trade credit default swaps based on European leveraged loans (LCDS) this week. The German bank had executed trades before, but it is now actively making markets and showing pricing runs for more than 20 names.Marcus Schüler, head of integrated credit marketing in London, said Deutsche has traded with a number of counterparties this week; contracts referencing Paris-based electrical parts company Rexel, and chemicals firms Basell and Ineos - based in The Hague and the United Kingdom, respectively - are among the most popular currently.
"LCDS give many investors that could not previously access the leveraged loans market an opportunity to gain exposure to the asset class,” said Schüler, adding that the instruments' settlement was “quick and easy" in comparison to loans.
“Correlation desks and portfolio managers are very keen on adding new names to their portfolios, particularly higher yielding ones," claimed Schüler.
The documentation for LCDS is based on the standard CDS documentation. “Probably the biggest difference compared to regular CDS is that European LCDS will terminate when all underlying loans are refinanced. Also, a credit event ‘release of security’ has been added where the affected loans cannot be delivered through,” explained Schüler.
Inter-dealer brokers Tullett Prebon and GFI have reported seeing LCDS being quoted more frequently in the Street.
More on Credit Derivatives
Arbitrageurs have exited trades, leaving basis structurally higher
Managed deals could be next, but market's potential is expected to be limited
Active deals seen as “the next step” after last year’s revival of static CDOs
Sign up for Risk.net email alerts
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.