New York-based Primus Financial Products and London-based Solent Capital are separately working on synthetic collateralized debt obligation squared transactions. Candace Lau-Hansen, global head of marketing at Primus, declined comment about the deal, but said as long as the low spread environment remains, synthetic CDO squareds will grow in popularity. "It's difficult for investors to find the yields they're looking for in a low spread environment," she said. Rather than going down the credit quality curve, the synthetic CDO squared offers yield via structured leverage.
Tricadia Capital, a subsidiary of Mariner Investment Group, became the first North American manager to close such a deal when it issued a USD400 millionCitibank-structured transaction last month. Its CDO squared was referenced to seven investment-grade portfolios comprised of 242 names and worth USD1.2 billion each with 4.5%-10.5% tranches. Arif Inayat, co-founder and partner, said, "[The structure] gives a lot of flexibility." He thinks the product could expand in a wider variety of asset classes such as emerging markets and high-yield.
