Synthetic collateralized debt obligations issued on a private basis are becoming more popular than the more traditional public, or syndicated, transactions. Dealers in Europe say they have been kept busy during the typically quiet summer months with reverse inquiries and private CDOs, which are generally bespoke tranches tailored for the needs of a single investor. "Usually I get at least one week off during summer, but this year I have been too busy," griped one London-based European head of synthetic credit.
Andrew Jackson, credit risk manager at Cairn Capital in London, suggested the trend toward private deals may in part be attributed to managers' caution about conveying the idiosyncratic risks--which are necessary to make synthetic CDOs viable in the tight spread environment--of a CDO to a huge number of investors. "It can be hard to explain to 100 investors that some of the more risky names in a portfolio may experience pain along the way, but a manager can do this thoroughly when it is one-on-one."
Another buy-sider suggested issuance of public CDOs will pick up in Europe when investors return from the holiday period. "The pipeline is looking full," he said.
