A raft of firms, includingCredit Suisse, Citigroup and UBS, are securitizing portfolio credit-default swaps on balance-sheet bank loans. Credit Suisse and Citigroup both issued CLOs this month and ratings analysts said they have seen proposals from firms across the Street.
There is a big buzz around synthetic CLOs because of newly standardized terms for trading loan CDS. Most market participants are eager to get into LCDS but so far too few names are being traded to structure fully synthetic cash-flow CLOs. As a result, dealers are structuring full synthetic deals referencing entire portfolios of bank loans.
Credit Suisse's Sphynx CDO 2006-7 raised USD1.092 billion this month and references Credit Suisse's own book of investment-grade bank loans. Fiachra O'Driscoll, managing director in fixed income and head of synthetic CDO trading at Credit Suisse in New York, said it was oversubscribed and placed with a variety of investors in Europe, Asia and the U.S.
Citigroup this month closed its third fully-synthetic deal in a series of balance sheet CLOs, called Beach Street I, II and III. Those deals, collectively valued at USD2 billion, offer 70% fixed recovery on primarily non-investment-grade bank loans. Credit officials said they reference a broader selection of credits than are traded as single-name loan credit-default swaps, noting only 30% of the 166 names referenced across Beach Street deals can be found in the LCDS market.
Citi plans to close a fourth Beach Street deal this fall. Bank of America reportedly has issued a similar deal, but details could not be determined and officials declined comment. UBS was first to issue its first fully synthetic CLO late last year but has not followed it up. Officials at the Swiss firm said it is hiring more staff to look at doing this (DW, 7/28).
