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Credit options sold to bond investors for first time

Dresdner Kleinwort Wasserstein today launched and priced credit spread warrants based on ?400 million of Casino to-be-issued bonds.The warrants give investors the option to purchase Casino bonds in the future on terms determined today. It is the first time that credit options have been sold to corporate bond investors.


The warrants are securitised credit call options, which settle similarly to bonds. Investors who purchase the credit spread warrants are entitled, on the warrant expiry date of 8th December 2004, to purchase up to ?400 million of a new 10-year Casino fixed rate issue, at a yield equivalent to mid-swaps plus 85 basis-points.  If investors exercise their options, Casino will issue 10-year bonds under their EMTN Programme at the terms agreed under the warrant sale. For the purchase of the credit spread warrants, investors paid Casino an upfront premium of 0.54% of the underlying notional amount.


Henry Nevstad, managing director and head of structured debt and private placements at DrKW, says: ?This is a significant development for the corporate bond markets, in that it introduces credit options to investors. DrKW has developed a proprietary product, enabling Casino to monetise credit spread volatility, and giving investors a new tool to profit from an improvement in credit spreads."

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