Creditex Acquires Stake in Trade Settlement Inc.

Eyeing the market for loan-only credit default swaps, Creditex Group has acquired a minority stake in Trade Settlement Inc. (TSI), a privately held company that operates a post-trade processing platform for syndicated bank loans.

As part of the transaction, both companies are also announcing a partnership between TSI and T-Zero, an independently managed subsidiary of Creditex Group, which operates a post-trade affirmation platform for credit default swaps. The partnership will enable T-Zero, a technology agnostic firm, to expand its affirmation platform into the syndicated loan market."We were having the same problems as in the credit derivatives world. The market got ahead of the settlement. I decided we need a post-trade processing platform for syndicated bank loans," explains Pat Loret de Mola, CEO of TSI in New York, serving the $3 trillion primary and secondary global syndicated loan market. The company has been around since 2000, notes the CEO, a former banker with the Loan Syndication Trading Association.

Take the example of a lead bank does a jumbo loan deal for $1 billion and sells pieces of it to other lenders including institutional asset managers, hedge funds and primary funds, she says. "Those little pieces will require their own paper work to have the ownership transferred to them. We do all that via the Web automated and digital platform," explains Loret de Mola.

While TSI's loan platform has gained rapid adoption in the U.S., according to the release, the Creditex investment could help it to expand its post-trade platform for primary and secondary syndicated loans to Europe. At the same time, T-Zero is expanding into Europe and "they have a strategic interest in our evolution and expansion into Europe," says Loret de Mola. "We're going to being our pilot in Europe with respect to our electronic loan settlement platform Europe is exploding and loans are being heavily traded there," she says. "There's a real pain there because everything is manual and they are in real need of a truly straight through processing platform," she says.

Financial terms of the investment were not disclosed, but Creditex's stake is more than five percent and less than 50 percent, says TSI's CEO.

Together both companies expect to capitalize on potential growth of loan-only credit default swaps (LCDS), a new market that represents the convergence of loans with credit derivatives. "They have the same vision as us providing post-trade and straight through processing. The area where we're collaborating in is the loan-only credit default swaps," says TSI's CEO. While in the credit default swaps the underlying instrument is a bond, whereas with loan credit default swaps the underlying is the loans.

News of the Creditex-TSI investment comes as the market is preparing for the launch of LCDX, a credit default swap index that will consist of 100 reference entities, referencing 1st lien loans, stated the release. Market participants expect rapid growth in both the new index and single-name LCDS, according to the release.

As partners, T-Zero will take care of all the affirmation and ensuring that there is accurate trade capture, while TSI will do the trade settlement, says Loret de Mola. "In the case of loan credit defaults, our platform will provide the mechanism for settlement of those underlying default loans.

There are potential synergies because of the same market participants trading bank loans are also trading LCDS. "That's the natural expansion to our platforms," says TSI's CEO, adding, "They're already settling bank loans on our platform." In addition, a lot of the firms that buy or sell LCDS are hedge funds, which are buyers of bank loans as well, she notes. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio