Firms in Tokyo have started seeing a pickup in demand for rated first-to-default baskets as an alternative to synthetic collateralized debt obligations in the tight-spread market. "[First-to-default baskets] are becoming more attractive," said Ichinori Kitahara, chief analyst in the structured finance ratings group at Ratings and Investment Information in Tokyo. He noted synthetic CDO issuance has slowed down to a trickle this year with only a handful of new deals, while the number of structures fell last year from 2003.
Market officials say there is particular demand for rated first-to-default baskets of Japanese names clients are familiar with. Credit structurers said one driving factor for such rated transactions is the upcoming Basel Capital Adequacy Accord in 2006, which is expected to lead a swing toward holding rated investments. "Clients such as regional banks in Japan are becoming more ratings-aware," said a credit structurer at Shinsei Bank in Tokyo, explaining under Basel, changes in risk-weightings for holding such products will be a greater incentive to hold rated instruments.