Synthetic collateralized loan obligation transactions are beginning to take off in Australia as domestic banks look to free up balance sheet capital. "There seems to be interest from both sides--investors getting their arms around the product and inquiries from banks," said Myrna Fajardo, senior credit officer at Moody's Investors Service in Hong Kong, noting that with the Basel II accords nearing, banks are taking a closer look at their balance sheets.
Michael Halloran, head of capital markets structuring at National Australia Bank in Sydney, said CLOs allow it to free up and re-employ capital at an increased velocity. This week NAB is pricing a six-year synthetic CLO deal referencing a USD1.55 billion portfolio of Aussie and U.K. loans structured in-house. This is the bank's second CLO transaction. Four tranches ranging from Aaa to Ba1 are on offer in euros, Aussie and U.S. dollars and will be distributed globally. ANZ is also finalizing an Aussie-dollar synthetic CLO deal for local investors given that domestic credit spreads have tightened in (DW, 9/1).
Also driving interest is growing investor appetite among institutional investors for such types of deals to diversify their fixed-income holdings. "There is certainly a growing bid for structured credit products in Australia," Halloran continued, noting that more clients are getting comfortable with synthetic transactions and are getting mandates in place. Fajardo anticipates the market taking off next year with a handful of additional transactions.
