Bank of America is structuring a USD600 million synthetic collateralized debt obligation on Far Eastern debt, which bankers believe could be the first of its type. The deal, which is expected to come to market in the coming weeks, is unusual because the reference portfolio consists exclusively of Asian and Australian credits. Synthetic CDOs that include Asian names typically also have exposure to European and U.S. names for diversification and because there are relatively few liquid credit default swaps in the Asian market. Officials at BofA declined to comment.
An Asian-based investor said the portfolio consists of 60 credit default swaps referenced to investment-grade corporates and sovereigns. He decided not to invest in the CDO because it has recently invested in Balboa, a cash CDO structured by Lehman Brothers, and does not have assets to allocate to more structured products at the moment.
USD550 million of the deal is being sold as a credit default swap and the remainder is being split into four tranches of credit-linked notes and an equity tranche, according to the investor. The credit-linked notes are divided into USD20 million of single A rated notes, USD12.5 million of triple B rated notes, USD5 million of double B rated notes and USD10 million of unrated notes. There is also a USD2.5 million equity tranche.