Enron's Fall To Spark More Credit Hedging, Official Says
Dow Jones & Company, December 10, 2001

NEW YORK (Dow Jones) --Rapid credit downfalls like that of Enron Corp. (ENE) could actually boost the use of credit derivatives in the coming year, a credit derivatives industry professional said Monday.

Until it filed for bankruptcy protection on Dec. 2, Enron was among one of the most actively traded names in the credit default swap market. These insurance-like derivatives protect against corporate credit events like defaults and, in some case, loan restructurings for a fee.

Since Enron's filing, dealers have settled Enron default swap contracts in what several market participants said Monday has been an orderly fashion.

Sunil Hirani, a co-founder of Creditex, an online trading site for credit derivatives, said buyers who bought protection against an Enron default are going to be "made whole" on the protection that they bought.

"We at Creditex view the Enron settlement as extremely positive for the credit derivatives market," Hirani said, speaking Monday at a Creditex press briefing in New York.

Hirani said corporate credit events like that of Enron and the quick settlement of credit derivative contracts will only increase users' confidence in the credit default swap product and bring in new participants to the market.

And more areas within risk management circles will begin to use credit derivatives to manage corporate credit risk in the same fashion that other derivative products are used to hedge currency and interest rate risk and volatility, he said.

"The same level of risk management and foreign exchange management will be place on credit risk," Hirani said.

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