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Unformatted text preview: I Debt Research Credit Strategy February 28, 2007 """" BankofAmerica ~ Credit Default Swap Primer Third Edition Rgure 1. Estimated Growth in Single-Name CDS Notional Glen Taksler 2129332559 glen taksler@bofasecurities com Derivatives Strategy 10,000 8,000 '" c 6,000 S iii 4,000 <I> 2,000 .... en en ... co en en ... en en en ... 8 c:> N ... 8 N 8 N 8 N 8 N ... :z: CD c:> c:> N Additional Authors Jeffrey A . Rosenberg 2129332927 jeffrey rosenberg@bofasecuritiescom Head of Credit Strategy Research Ward Bortz 2125838451 wa rd bortz@bofasecuritiescom Derivatives Strategy Xiaodong Zhu 2128475489 xzhu@bofasecuritiescom Portfolio Strategy Sources: British Bankers Association; ISDA; Bane of America Securities LlC estimates I he rapid growth and evolntion o/the credit delimit swap (CDS) market now places it at the forefront of nearly every credit portfolio manager's investment oppor tunity set, Since its early days ofproviding a vehicle fm bank loan pOitfolios to hedge credit exposmes, the CDS maIket has moved into the mainstream of credit pOitfolio management Hedge funds, mutual funds, pension funds and insurance companies now access the CDS market, rounding out the base olusers flom banks and dealers Issuer' representatiou in the credit default swap market is evolving fI'om purely high grade into high yield, pr oviding new tools for tr aditional high yield investors and new credits for traditional CDS investors, We discuss featmes relevant to the growing high yield CDS market, including the indices, conversion between dollal price and spread, and the meaning of points upfront New to the third edition! Second-generation CDS products allow investors to reference more than just corporate bonds, Leveraged loan CDS and secmed CDS let investors trade across the capital stmctme, while CDS on ABS references subprime mOitgages, We look for expansion of new entrants to the CDS market, including CDS on CDOs, preferreds, accounts receivable, and private placements, We greatly expand our discussion of how LBOs and spinoffS aflect CDS contracts through Succession language" We also analyze negative basis trades, CDS settlement protocols, and the details behind CDS maIket surveys This report has been prepared by Bane of America Securities LLC (BAS), member NYSE, NASD and SIPC. BAS is a subsidiary of Bank of America Corporation. This report is intended for sophisticated institutional investors and equivalent professionals in the fixed income market only. Please see the analyst certification and important disclosures on page 154 of this report. BAS and its affiliates do and seek to do business with companies mentioned in their research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Should investors consider this report as a factor in making an investment decision, it must be considered as a single factor only. Credit Strategy Research February 28, 2007 BankofAmerica~~...
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This note was uploaded on 10/21/2007 for the course H ADM 225 taught by Professor Jwellman during the Fall '07 term at Cornell University (Engineering School).
- Fall '07