CLO Managers Turn To Synthetics To Ease Deal Ramp Up

Managers of true sale collateralized loan obligations, including Credit Suisse Asset Management, are adopting synthetic exposures to indices as a means of generating yield and reducing negative carry as tight spreads and an active loan community pose challenges to sourcing loans for new deals.

  • 15 Feb 2004
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Managers of true sale collateralized loan obligations, including Credit Suisse Asset Management, are adopting synthetic exposures to indices as a means of generating yield and reducing negative carry as tight spreads and an active loan community pose challenges to sourcing loans for new deals. David Tesher, managing director at Standard & Poor's in New York, said the ratings agency saw the first such deal hit the market in December and several more are in the pipeline. Managers are also looking to purchase exposure to synthetic indices in case loan prepayment results in surplus cash, he added.

As yield-bearing loans became increasingly difficult to source there are concerns that managers could drift down the yield curve to fill the deal, said Tesher. To avoid this possibility, managers have began structuring credit-linked notes referencing synthetic high-yield indices, such as Credit Suisse First Boston's Select Aggregate Market Index "SAMI" (Secured) index. Tesher expects that other high-yield indices, such as TRAC-X or iBoxx, may also be used.

Nik Khakee, director at S&P in New York, added that the notes offer managers greater flexibility as they give managers time to be more selective when ramping up their portfolio. The strategy does, however, pose mark-to-market risks because when a manager buys more loans, they will need to sell some of their position in the credit linked notes and this may come with a trading loss, depending on the underlying index, he said.

  • 15 Feb 2004

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 Jul 2017
1 Citi 253,106.92 930 8.89%
2 JPMorgan 230,914.50 1036 8.11%
3 Bank of America Merrill Lynch 221,389.46 762 7.78%
4 Goldman Sachs 171,499.26 554 6.03%
5 Barclays 169,046.60 646 5.94%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 25 Jul 2017
1 HSBC 27,039.93 106 7.36%
2 Deutsche Bank 25,125.19 81 6.84%
3 Bank of America Merrill Lynch 23,128.33 61 6.29%
4 BNP Paribas 19,315.94 110 5.26%
5 Credit Agricole CIB 18,706.93 106 5.09%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 25 Jul 2017
1 JPMorgan 13,488.13 59 8.47%
2 Citi 11,496.21 73 7.22%
3 UBS 11,302.86 45 7.09%
4 Morgan Stanley 10,864.95 59 6.82%
5 Goldman Sachs 10,434.21 54 6.55%