Guide to Leveraged Loan CDS

Guide to Leveraged Loan CDS - Debt Research Credit Strategy...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Debt Research Credit Strategy September 28, 2006 Glen Taksler 2129332559 glen [email protected] com Bankof America-?~ Guide to leveraged loan CDS ~ Leveraged loan CDS ("LCDS") allows investors to refer ence secured loans in standardized credit derivative contracts" With steady growth in the double- and single-B high yield universe, we look for LCDS to become popular among bank loan portfolios and hedge funds ~ One of the biggest dillerences between LCDS and senior unsecured CDS is prepayment risk, In the US, LCDS trades may terminate early if a loan facility is refinanced and not replaced In Europe, the criteria are still being finalized, but are expected to be more stringent-contracts terminate if a loan facility is refinanced, regardless of whether the f'lCility is replaced ~ LCDS increases opportunities to tr ade across the capital str ucture, In recent months, LCDS has traded cheap to the fair value spreads implied by senior unsecured CDS and assumed recovery rates, This has led to significant demand for selling protection ~ Although we look for a tr ansition to cash settlement, cun ently, LCDS physically settles" To be deliverable into an LCDS contract, an obligation must arise under a syndicated loan agreement and trade as a loan of the designated priority (first-, second-,or third-lien) The protection buyer also must be able to create participation rights for the seller Table of Contents Overview, .2 Credit Events 2 Early Termination (Cancelability) 3 Settlement, 3 Succession Language 4 European LCDS" 4 Comparing Loan CDS with Senior Unsecured CDS ' .5 LCDS - Loan Basis , .5 Capital Structrue , 8 Unwinds, 12 LCDX ,., 13 Collateralized Loan Obligations (CLOs), 13 Special Features olLoan CDS 14 The Reference Obligation and the Secured List ' , 15 Syndicated Secured Characteristic 15 Settlement, 16 Appendix A: More on the Dispute Resolution Process 19 Appendix B: Deriving the Spread Relationship Between LCDS and Senior Unsecured CDS 20 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 22 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"
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Credit Strategy Research September 28, 2006 Bankof America <?~ This document assumes familiarity with both semOf unsecured CDS and the cash loan market For more on senior unsecured CDS, please see our Credit Default Swap Pnmer Second Edition January 5, 2006 Overview Leveraged loan CDS ("LCDS") allows investors to reference secmed loans in standardized credit derivative contracts. Focused on the double- and single-B bigh yield
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern