The new index will begin trading on March 17, and will have some significant differences to the original index of European synthetic loan names.
The contracts will be non-cancellable, meaning the loan contracts do not terminate in the event of a refinancing of a reference obligation. They are replaced by an equivalent obligation, bringing the contracts closer to the US LCDX index.
Unlike the US, the contracts will remain based on the reference obligation, in other words the loan itself, rather than the reference entity or the company that issued the loans.
The first series, launched in November 2006, has not had a roll since inception, and referenced 35 senior and 35 subordinated loans in seperate indexes. There are 26 senior and 25 subordinated names referenced by that series, due to cancelled refinanced names. The US index references 100 names.
The latest LevX series will reference 75 senior and 45 subordinated names, making it easier for the index to be tranched eventually. A total of 14 dealers have comitted to making markets in the new series, while Markit says a total of 20 dealers is expected by the end of the year.
A panel of bankers at a briefing held by Markit on Tuesday suggested that, as well as being used by banks hedging and speculating on the index, it will be opened to equity investors and macro funds as well. There are also hopes the index will help grow the new synthetic collateralised loan obligation market in Europe.
A reasonable target would be €1 billion traded a day, estimated the panel, although a leveraged loan trader suggested the timing of the launch, just before the Easter lull, and the volatility in the market might mean it takes several weeks to reach these levels.
The week on Risk.net, July 7-13, 2018Receive this by email