RBC Capital Markets has structured a series of leveraged super-senior tranches in response to investors' growing appetite for the products. The firm has closed USD300 million of single tranche deals, 75% of which reference credit-default swaps on corporates and 25% CDS indices.
While spread triggers have been attached to some of the tranches, the majority feature loss-based triggers because they are favored by clients, said Walter Gontarek, managing director and head of global credit products at RBC in London. "They feel it's a more transparent way of managing risk in the transactions and take comfort from it," he said. Investors in the deals include insurance companies and portfolio managers globally.
Gontarek also noted the firm's shift away from leveraged super senior tranches with five-year maturities towards seven- and 10- year, where higher yield presents more attractive pricing options. "One five-year bespoke corporate trade which was paying 125 basis points when issued two months ago would currently be around 75 bps," Gontarek said. The tranches are all static, but Gontarek did not rule out adding managers to future leveraged structures. "We are considering that," he said.
