Credit officials in Japan are seeing increased demand for equity tranche components in synthetic CDO deals. "There are very thin spreads at the moment for super senior transactions so we're seeing a move toward equity," explained Yusuke Seki, v.p. and senior credit officer at Moody's Investors Service in Tokyo. In recent months firms such as BNP Paribas have rolled out leveraged super senior deals in Japan (DW, 8/12). But market officials noted increased issuance, as well as a shift in the correlation curve, means super senior tranches are not as attractive in the current environment.
Seki said Moody's has been seeing inquiries into deals including the equity tranche of portfolios--though with some protection included. Long equity/short other tranches have been on the radar screen as well as CPPI-linked deals. "This is a new development being pushed out here," said a credit specialist at a European house, noting his firm expects to close CPPI-linked equity deals in the coming months, as a result of Japanese investors becoming more comfortable with such capital-protected deals.
