March 30, 2006

Deutsche Bank to make markets in credit default swaps on U.S. leveraged loans

Deutsche Bank announced today it has started active market making of credit default swaps on leveraged loans (LCDS). The LCDS market will allow investors to take short- or long-term positions on leverage loans and open up this private market to new investors looking for higher-yielding assets. Unlike traditional CDS transactions, LCDS restricts deliverable obligations to specific levels of bank debt, allowing buyers of protection a more efficient hedging instrument and insulating sellers from exposure to bonds.

"An industry-wide working group has made substantial progress in crafting a standard document that contemplates the hedging needs of bank portfolios as well as the needs of single name investors, synthetic investors and the second-order products," said Chip Stevens, Managing Director and U.S. Head of High Yield CDS Trading at Deutsche Bank. "While we expect major dealers to agree upon that document in the near future, in the interim we are excited to begin active market making on LCDS, which gives either the buyer or seller of protection the option to transition their contract to the market standard when that document becomes fully adopted by the Street." 

"As the credit markets continue to grow and rapidly evolve, we are always looking to cultivate new markets and innovative products to offer to our clients," said Derek Smith, Managing Director and Head of U.S. Flow Credit Trading at Deutsche Bank. "LCDS gives clients an opportunity to access the leveraged loan market with the flexibility of the traditional CDS market; currency, maturity and size can be customized to meet the client's needs."

Earlier this month, Deutsche Bank announced it would make markets in CDS of European leveraged loans and has begun trading with a number of counterparties.


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Deutsche Bank

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