Standard & Poor's has assigned a AAA rating to the first public fully-rated credit constant proportion portfolio insurance transaction. The innovative structure--from ABN AMRO--has been eagerly awaited because it is expected to draw in investors who have shunned credit CPPI because of the uncertainty of returns (DW, 7/21). Officials at ABN declined comment before the deal closes.
Cian Chandler, analyst at S&P in London, said the CPDO features an innovative investment strategy whereby target coupon payments are met by taking variable leveraged exposure to a portfolio of credit derivative indices. Also noteworthy is that protection is being sold on the full capital structure and there is the option to cash in to a coupon-paying bond before maturity.
Tagged Chess II, it features an underlying of iTraxx and CDX indices, and while it is not managed, the roll of the idices and the dynamic leverage will help limit default risks. Three sets of notes denominated in either euros, U.S. dollar or yen are currently being marketed to investors and pricing is expected later this month.
