More companies are worried about the credit risk of their counterparties than any other derivatives issue, according to a joint survey by CIBC Wood Gundy and the Wharton School.

Ultimately, the rising concerns about the creditworthiness of participants in the derivatives markets could hurt U.S. banks with low credit ratings.

The survey was the second on which the two organizations have collaborated. The annual project differs from other surveys in that randomly select U.S. corporations of all size are chosen to give their views on derivatives.

By a slim margin, 33% of the survey respondents ranked counterparty credit risk as their biggest concern in a derivatives transaction. The second-most-common concern, cited by 31% of respondents, was evaluating the risks of the instruments. Next was the ability to use hedge accounting, a worry for 30%.

Those views suggest that corporations are becoming more credit conscious, particularly on long-term transactions, said Gordon Bodnar, an assistant finance professor at Wharton who helped coordinate and compile the survey results.

Of firms that have used derivatives, 40% said they were not willing to deal with a counterparty that is rated less than double-A if the maturity of the derivative extends beyond one year.

"This could be seen as bad news for some U.S. banks," he said.

The news was not all bad for commercial banks, however. Of companies that used derivatives last year, 91% said their primary counterparty was a commercial bank. Investment banks ranked second, at 47%.

The survey found that the well-publicized problems in the derivatives markets have not discouraged industrial companies from using the instruments. In fact, end users have become more interested in understanding derivatives so that they can use them more.

"Without question there is a great increase in desire to understand what derivatives are about," said Mike Rulle, a managing director and head of CIBC Wood Gundy's derivatives operations worldwide. "Even those people and companies who are sophisticated and frequent users have exhibited strong demand to learn more."

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