SG Wraps AAA-Rated Synthetic ABS Fund

SG Corporate and Investment Banking last week closed a EUR70 million (USD84 million), 10-year synthetic portfolio of highly-rated U.S. asset backed securities. The fund references AAA-rated securities and is split into two classes of floating rate note ABS, one EUR30 million and the other EUR40 million. Hubert Le Liepvre, deputy head of structured credit at SG in London, said the deal appeals to investors who like leveraged exposure to AAA-rated securities. "This is a way of giving investors exposure to ABS as well as attractive credit spreads," he said.

The single tranche deal comes at a time when a greater number of CDO structures of synthetic ABS are hitting the market, according to market players. "Investors are more interested in profitability and a bank's ability to offer diversification away from corporate CDS and towards CDS on ABS, which have been stable the past few years," noted one official.

The portfolio, named Napa Valley IV, is a follow-up transaction to Napa Valley II, which the firm launched in October last year. SG expects to launch the deal next month and has the right to substitute 20% of the assets per year. Napa Valley IV's underlying portfolio has been given a rating of Aaa on principal by Moody's Investors Service. Rupert Schoder, structured finance group analyst at Moody's in Paris, said the deal is distinctive because of the superior quality of the underlying. He also noted he has only seen one other single tranche synthetic ABS deal, structured by Winchester Capital Principal Finance in 2003.