Asian investors are looking to buy equity tranches of hybrid and synthetic asset-backed securities collateralized debt obligations. Traditionally credit risk-averse, Asian investors have been tempted to the high-yielding tranche by structures such as combination notes. In these deals, coupons are linked to CDO equity returns, while the investor's principal is placed in more secure senior tranches or government Treasury strips.
In the past, Asian credit clients--including insurance companies and banks--have been interested only in the senior part of the capital structure, while U.S. and European investors have been buying equity tranches outright. The recent interest in equity exposure follows a slew of CDOs structured to make the junior tranches more investor-friendly.
Despite concerns about large, similar deals hitting the market at once and squeezing returns (DW, 8/14), structurers said each deal has been oversubscribed and overseas interest is picking up. "The market is still quite hot," said Ally Chow, managing director and head of structured credit product management and syndicate at Calyon in London, which issued Orion 2006-1 (DW, 5/12), the first of the series. The bank is following the success of Orion with three to five similar CDOs scheduled to close by the end of the year. Each will be between USD1.2 billion and USD2 billion. "Demand is as high as previous deals," she said.