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Firms can buy insurance against floating rates
NEW YORK - As much as corporate treasurers wish to avoid
risk, they have little choice these days but to finance their operations with floating-rate debt. And until recently, the only way they could hedge against a rate rise was by immersing
themselves in the complexities of financial futures, a step that many refused to take.
Already variations on the basic theme have appeared.
Earlier this year, Citibank introduced a ''floor-ceiling'' program, under which customers would be protected from a rate surge, but in the event of a rate plunge would benefit from only the
first few percentage points of the decline. The program's fee, said Leslie Lynn, a Citibank vice-president, is less than for the ceiling-only protection that Citibank began offering last
fall.
(August 14, 1984)
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The Striking Price Chemical’s Risky Business
Leslie Rahl, head of interest rate risk
management group that Citicorp, the leader in the options market, says most lending agreements between banks and companies involved in LBOs and restructurings require cap purchases. The price
of the cap depends on the maturity and the strike price. The longer maturity and the lower the interest-rate strike, the more expensive the cap.
(October 09,1989)
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Basis Points
CAP BOOM: with short-term rates up sharply in the past year
to their highest level since 1984, companies with debt or bank loans tied to short rates have rushed to protect themselves against further increases. The result has been big growth in the
market for interest-rate caps.
“There has been much more activity in the first 2 ½ months
of 1989 than on average in 1988, and last year wasn’t a quiet year,” says Leslie Lynn, head of the interest rate risk-management group at Citicorp one of the major participants in the cap
market.
(March 20, 1989)
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Swap Market Approaches $1.5 Trillion, According
to IDSA Market Survey: Bank for International Settlements to Utilize Market Data
NEW YORK - The International Swaps Dealers Association
(ISDA) today announced the results of its latest semiannual survey measuring swap market activity, which revealed that, at December 31, 1988, the total notional principal amount of swaps
outstanding exceeded some $1.3 trillion.
Leslie Lynn Rahl, chairman of ISDA’s market survey
committee and vice president of Citicorp commented, “Before ISDA initiated the market survey in 1985, there was almost no publicly available information on the total size and composition of
one of the world’s largest markets. The latest numbers confirm a steady growth pattern in the market. Because we express for value of all swap contracts in US dollar terms, the relative
strength of the US dollar impacts the appearance of the market survey results for non-dollar swaps. The US data continues to represent the largest share of both interest rate and currency
swaps (72 percent and 43 percent, respectively). The Japanese yen market represents 20 percent of currency swaps, and the Swiss franc, 12 percent. The remaining 25 percent is divided between
ten currencies.”
Rahl continued, “The year-end survey confirmed the trend
toward shorter swaps. In US dollars, swaps under two years grew by 55 percent and stops between two and five years grew by 33 percent, while swaps between five and 7 years grew by only 16
percent and swaps between seven and 10 years actually declined by 3 percent.”
(July 26, 1989)
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The Rocket Men Are Still at Work
In addition to his rush of newfangled developments, the market in last year’s inventions has been booming. As financial engineering has grown, the
older products have enjoyed a new lease on life. Most notable of these is the swap option or swaption.
“Client receptivity to swaptions has been
substantial,” says Leslie Lynn-Rahl, head of risk management at Citicorp in New York. “We have sold as many of these instruments in the first quarter of this year
as we did for the whole of 1988.”
Earlier this year the International Swap Dealers Association (ISDA) reported that swap options have reached a total of $37
billion with over 600 separate transactions completed. This is the first time that swap option figures have been measured. “What was once a state-of-the-art
product is now just another item on the shopping list. We catch up with ourselves pretty quickly in this business.” Says Lynn-Rahl
(September 1, 1989) |
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GLOBAL FINANCING GUIDE
Yet, despite the challenge of the non-Americans, it's still
the US banks which dominate our poll. And just three -- Citicorp, Security Pacific and Bankers Trust -- have a virtual monopoly on the leading positions. Indeed, Citicorp occupies first slot
in all but two categories.
"We've made a consistent effort to educate the
marketplace., helping clients to understand what tools are available and how they can best be applied to their individual situations," is how Leslie Lynn Rahl, a vice-president and head
of interest-rate risk at Citicorp, explains the bank's success.
(September 1, 1989)
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For The Client, A Black Box or Something Transparent?
One of the most important innovations in a risk management
has been the development of specialized teams with time, skills and computer power to analyze client’s problems. Banks are still putting these teams together.
The classroom view of where interest rates will go, how
currencies will fluctuate, and the extent to which this will affect him are the starting point of any risk study. Leslie Lynn, vice president at Citicorp in New York, says: “The client’s
views determine our recommendation of hedging products and timing of their implementation.” These views dictate how much the customer is prepared to pay and what he is prepared to pay
for.
(August1, 1989)
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Flexible Cover is Just Right for the Leveraged Buy-out
Corporations used to forward rage agreements (TRAs) , swaps
and callable debt have suddenly understood that options are just an extension of these products, and that they do not have to be risky or expensive. Asset managers have discovered that
options can protect and enhance the value of their portfolios.
Option mania is evident in the explosion of the caps
market, whose importance has recently been recognized by the Internal National Swaps Dealers Association (ISDA).
ISDA also published the results of a survey covering 44 of
the largest banks and other dealers, which measured volumes in caps, floors, collars and swaptions. The survey states that these instruments have been written in 11 currencies but, according
to Leslie Lynn, vice-president of Citicorp and co-chair person of ISDA’s documentation committee, this does not include a few transactions in the Malaysian ringgit an the Thai Baht. The
volumes in Swiss Francs Ecu and Yen are reported to be small.
(August 1, 1989)
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Swap Rule Proposed for Bankruptcy Law Bill Would
Extend FDIC Policy to Insurers and Other Dealers
Leslie Lynn, a vice president at Citibank, New York, and a
director of the International Swap Dealers Association, called the IRS ruling "reassuring" because it shows that "they are indeed going to treat these derivative products as
having some connection with financial reality." She said the swap dealer group has been pressing the IRS for a ruling on this issue for some time.
(February 10, 1989)
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LBO’s Spur Rise in Rate Protection Deals - Cap
Agreements Surpassed $290 Billion Last Year
Leveraged buyouts and recapitalizations last year fueled an
unprecedented surge in the agreements that corporations used to protect against increases in interest costs.
Outstanding interest rate caps and similar agreements
exceeded $290 billion at the end of 1988, according to a survey conducted for the International Swap Dealers Association.
Leslie Lynn, a vice president at Citibank who helped direct
the survey, said that interest rate caps and other protective instruments are an integral part of most leveraged buyout and recapitalization loans.
(March 13, 1989)
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The next generation of financial leaders
LESLIE RAHL
Bs in computer science and MBA from MIT . . .
Joined Citi in 1972 and managed growing back-office operation for a decade . . . Turned options trader in the early 1980s . . . As part of Citi team, devised a host of Interest-rate
protection products . . . Now runs US interest-rate risk management department . . . Citi dominant in this area, especially in the $1 trillion swaps market and the $300 billion caps market .
. . Driving force behind current boom in swaptions, arbitrage opportunity for companies issuing callable debt . . . "Derivatives are the new creative way to raise money, " says
Rahl, "They are going to drive the capital markets during the 1990s."
(January 1990)
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On the Rise
Lynn heads Citibank's interest rate risk management
department, which deals in the esoteric hedging services of high finance: swaps, swap options, caps, floors, and collars. Corporate treasurers pay her to cover them against adverse interest
rate movements and to reduce the cost of debt. Though Citibank will not specify revenues or profits, Lynn, a vice president, says it is the world's leading purveyor of these services, with a
market share of 10% to 25% in each. Says Lynn, who founded her department in 1983: "The market is expanding dramatically. Now that hedging tools exist, corporate treasurers have no
excuse not to use them."
(April 10, 1989)
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