search   Knowledge Bank printable version
 News
 Knowledge Bank
 Deal Information
 International
 Software
 Publications
 Industry Events
 Advocacy Forums
 Links
 Site Utilities
 Contributors
 Free Offers
 Home

Click here to
Update Registration
Information

Please be advised that the use of Securitization.net ®
is subject to the
Terms & Conditions

of use and the
Privacy Policy

Download

Best viewed in

Knowledge Bank > Financial > General
Select an area


Free trial of Total Securitization for site members.

First-To-Default Appetite Sharpens On Sub-Prime Crisis
Total Securitization -- Institutional Investor News (April 10, 2007)

European interest in first-to-default baskets of U.S. financial companies with exposure to the U.S. sub-prime mortgage market is picking up. In first-to-default trades, investors sell protection on a basket of bonds--in this case on banks and financial companies--and pay the losses on any name that defaults during the life of the trade. First-to-defaults are simple structures that have been around for years, but interest in them has started picking up as investors look for new ways to play on the sub-prime fallout.

Tony Venutolo, global head of synthetic credit structuring at SG Corporate & Investment Banking in London, said the idea is that the market has overreacted to rising sub-prime defaults and delinquencies. Firms with sub-prime exposure, such as Bear Stearns, Countrywide Financial, HSBC, Lehman Brothers and Wells Fargo, have seen credit-default swap spreads blow out to multi-month wides. "It is attractive to sell protection on these names [at current levels]," Venutolo said. "This is usually done in first-to-default format."

Venutolo said he has had 10 to 15 enquiries from European prop desks and credit portfolio managers about first-to-defaults on U.S. banks in the last three weeks, from none last month. A typical five-year trade on a five-name basket of bank and financial companies pays 100-150 basis points over LIBOR. He declined to say how many trades have been structured. Jean de Lavalette, director in structured credit solutions at SG in New York, said he has not seen the same kind of interest from U.S. investors because they have natural exposure to the sub-prime market.

European investors, however, have been looking for ways to add exposure. UBS recently launched a constant proportion debt obligation referencing 50 banks and financial companies to take advantage of widening spreads. "I could see how [first-to-default] is a good trade," said one officials there, but declined comment on whether UBS is working on any deals.

 

 

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

Legal Notices | Attorney Advertising | Site Index | Contact Webmaster

*The site links listed on this web site are for reference use only.
The firm does not necessarily sponsor, endorse or verify the accuracy of the content contained in any of these sites.