Dealers are looking to add bells and whistles on leveraged super senior tranches of collateralized debt obligations. Jireh Wong, senior v.p. in Dominion Bond Rating Service's CDO group in Toronto, said once the leveraged super senior product becomes more familiar to investors, the structure may be applied to other asset classes such as CDOs of asset-backed securities.
Agencies are increasingly looking at rating the probability of large spread movements, not just the likelihood of default, explained one structurer. Oliver Dunsche, director and head of credit derivatives structuring atBarclays Capital, noted, "[This] opens up new ways to structure rated credit investments." Barclays,HSBC and JPMorgan are working with DBRS on structuring leveraged super senior tranche trades. And ABN AMRO will soon join the fray, according to DBRS spokeswoman Caroline Creighton.
Investors have expressed concern over exposure to spread risk (DW, 5/30), but Dunsche said, "Many of the investors we're talking to view the spread triggers as being sufficiently remote." He said they view it as similar to the potential of default loss in a regular triple-A rated investment.
