UBS has ditched plans to issue a collateralized debt obligation of CDOs through its principal finance unit and has liquidated the portfolio of true sale CDOs it had accumulated to underlie the deal. UBS had initially been planning to bring to market the approximately USD1 billion CDO of senior CDOs, dubbed Cherry Valley, as a cash deal with a credit-default swap referencing the portfolio, said one official. Tightening spreads, however, reduced the arbitrage opportunities of the structure and with a profit already having been accrued on the underlying, the firm decided to liquidate the portfolio of CDOs and realize its gains, officials added. John Niblo, director at UBS in Stamford, Conn. declined comment.
The decision to pull the deal is noteworthy, coming on the heels of a USD2.5 billion CDO of synthetic CDOs that MBIA cancelled, said rival structurers. The insurer had been working with Deutsche Bank to securitize part of its CDO portfolio in a CDO of CDOs format as a means of managing its mark to market volatility risk (DW, 9/14). While firming spreads worked against the UBS deal, in MBIA's case the spread rally may have lessened the need by the insurer to manage its exposure. A lack of supply and richening prices in the secondary CDO market, however, may have also presented MBIA problems in sourcing the portfolio, he added.
Cherry Valley was to comprise a large collection of super senior notes, in addition to asset-backed securities and loans, said one official. CDOs pieces purchased for the structure included Pacific Coast CDO, managed by Pacific Investment Management Co. and American Capital Access' ABS 2002, he noted. Buyers of the pieces could not be determined.