FACTBOX-Five facts about the iTraxx Europe index

Feb 12 (Reuters) - Credit derivatives indexes in Europe have
set repeated new record highs in recent days due to fears over
the unravelling of complex credit instruments.

The Markit iTraxx Europe index ITRAC5EA=GFI has been at
the centre of attention, displacing the previous focus on the
iTraxx Crossover index ITCRS5EA=GFI. Here are five facts about
the Europe index.

*125 COMPANIES
The index, run by derivatives pricing group Markit, is made
up of 125 investment-grade companies -- those rated at or above
Baa3 by Moody's Investors Service and BBB- by Standard & Poor's
and Fitch Ratings.

The index contains financial companies such as Barclays
(BARC.L) and Deutsche Bank (DBKGn.DE), and also non-financial
companies such as retailer Marks & Spencer (MKS.L) and carmaker
Peugeot (PEUP.PA). For a full list of members, click on
<0#2I666VAH85E>.

A standard contract on the index is for 10 million euros of
credit protection on the debt of the underlying companies for
five years. Each company accounts for 0.8 percent of the
exposure.

*RECORD HIGH

The index on Tuesday hit a record high just above 110 basis
points, according to data from Markit. That means it costs
110,000 euros a year to insure 10 million euros of debt against
default.

At that level, the index is 60 basis points wider than at
the start of the year, and some 90 basis points wider than its
all-time lows, reached ahead of the credit crisis.
The widening in the index spread has been particularly
pronounced in the past few days. In the past week it has widened
some 25 basis points, according to data from Markit.

*STRUCTURED PRODUCT UNWINDING

Analysts and traders say the sharp move has been driven by
the unravelling of complex structured credit products built from
derivatives, such as collateralised debt obligations (CDOs).

The creation of these products, which essentially involve
investors selling credit protection on a group of companies, was
one of the factors that helped to drive spreads tighter during
the credit bull market between 2004 and the first half of 2007.

Now that the products are being unwound, spreads are being
forced wider as investment banks and others use the indexes to
hedge the resulting exposures, analysts say.

This has hit the iTraxx Europe index hardest as the
underlying pools are made up mainly of investment-grade
companies.

*PERFORMANCE VERSUS CROSSOVER
The Europe index has sharply underperformed the Crossover
index, which is made up of 50 mostly "junk"-rated companies,
even though the underlying companies are seen as less risky from
a credit perspective.

According to Deutsche Bank, in the first half of 2007 the
ratio between spreads on Europe and Crossover was 1:12; it is
now around 1:5.

The spread on the Europe index has more than doubled since
January 1, while the move on Crossover is more restrained, at 66
percent wider than the start of the year.

*ROLLING CONTRACT
The current index contract is series 8; a new series of the
index is launched every six months, with series 9 due to begin
in March.

This allows the index to be rebalanced to include companies
with the most traded underlying default swaps as well as to
remove companies that fall below investment-grade status.

For more details and data, please visit Markit's index
website at www.indexco.com or click on ITRAXXCDS.
(Reporting by Richard Barley; Editing by Quentin Bryar)