RBS Principal Investments last week priced one of the first European collateralized debt obligations of asset-backed securities to use the pay-as-you-go CDS settlement template. The principal finance arm of The Royal Bank of Scotland chose to use the dealer-backed documents--rather than those backed by the monoline insurers--because they have undergone the most market scrutiny, said an official familiar with the transaction. He also noted the firm was able to gain approval for use of the template from the rating agencies. Structuring officials at RBS declined comment.
The USD1 billion transaction references a portfolio of high-grade U.S. ABS with up to 20% synthetic RMBS or CMBS. Six classes of notes were issued, rated AAA to BB by Standard & Poor's and paying from 38 basis points to 700 bps over three-month LIBOR. The deal, sold to institutional investors in Europe, was arranged after RBS fielded reverse inquiries for synthetic ABS exposure from investors who wet their whistle with the firm's two USD1 billion Menton transactions. Both referenced cash and CDS ABS and closed in the past twelve months.
