Cairn Capital last week priced its maiden hybrid collateralized debt obligation referencing synthetic high-grade asset-backed securities. The USD1 billion deal, called Cairn High Grade CDO II, was issued by RBS Greenwich Capital and consists of primarily high-grade residential mortgage-backed securities. It will include 8% synthetic collateral at the outset and have unlimited upsize potential.
Structurers at RBS in Greenwich, Conn., and at Cairn in London declined all comment ahead of its close. Officials close to the deal said the synthetic component is important to manager flexibility as the synthetic ABS market becomes more liquid and efficient. Cairn High Grade CDO I, which was issued by Barclays Capital and closed last year, had a bucket for up to 10% synthetic collateral, but it was never used.
Investor concern about the U.S. housing market has contributed to increasing interest in high-grade ABS deals. Several hybrid and synthetic high-grade ABS CDOs have been issued recently, includingCredit Suisse's Magnolia 2006-6 and 2006-8 (DW, 6/30) and IXIS Corporate & Investment Bank New Bond Street CDO (DW, 7/21). RBS is working on another high-grade deal for the fall with GSC Partners (DW, 8/11).
