Interest has spiked among Asian investors looking to switch out of static synthetic CDO deals, either through buybacks or portfolio restructuring. The move is driven by concern about possible downgrades as well as the desire to seek higher yields.
"We've been actively buying back deals--it's really picked up recently," said Cedric Podevin, Asia-Pacific head of credit structuring at BNP Paribas in Hong Kong. He explained that clients are moving out of five-year static single-tranche global CDOs to managed transactions for extra comfort. With a manager on hand, investors are willing to look further out and are switching into seven or 10-year deals.
"Some investors, given the perceived increase in rating volatility, want to preserve the value of their investments and are looking at managers," said Leon Hindle, senior v.p. at Lehman Brothers in Hong Kong. International houses have also been bringing in global CDO managers to meet with investors.
Frank Lu, associate at Standard & Poor's in Hong Kong, explained that since many CDOs this year are seeing negative rating migrations there is a real incentive for static deals to be retooled. Lu said lightly or actively managed deals account for over two thirds of the Asian market, up significantly from last year.
In addition to buybacks, there has been some restructuring into managed deals. "This can enhance the stability of credit quality," said Elaine Ng, assistant v.p. at Moody's Investors Service.
--Matt Tremblay
