Volvo’s Jarlen denies credit derivatives deal

Magnus Jarlen, risk manager at Volvo Treasury, has denied trade press reports that Volvo has signed up to its first credit derivatives deal, saying that although the Swedish truck manufacturer had met with investment banks like JP Morgan Chase to discuss the idea, no deal was imminent.

“We actually haven’t done anything, but we have started to look into it to see if there is anything there that we should do in the future,” Jarlen told RiskNews. Volvo officials are due to hold more meetings with investment bankers before they even consider pricing specific deal structures, Jarlen added.

Volvo started implementing a central treasury function following the sale of its car division to Ford, and the company now has one of the most sophisticated enterprise-wide risk management systems in Europe, using a range of derivatives products like swaps and options to manage its risk. It is interested in using credit derivatives in many areas to hedge counterparty risk, but it is likely that the instruments would be most suited to help generate liquidity at its group-wide financing unit, set up 18 months ago to manage sales financing activities.

Jarlen said Volvo has some concerns about legal and documentation issues relating to credit derivatives, and that it also needs to establish how exposures can be integrated into its centralised risk management system. But neither is viewed as a major obstacle. “I think we will be using them in the future, but there is nothing on the list right now,” said Jarlen.