U.S.-based monoline Financial Security Assurance expects to sell protection on synthetic collateralized debt obligations backed by high-yield securities this year as deals referenced to investment grade assets continue to suffer from tight spreads. Steven Kahn, director in New York, said as investment grade deals appear rich on both a relative and absolute basis the insurer sees more potential in selling protection on high-yield backed deals. FSA has sold protection on such deals previously, but did not enter any such trades last year.
The firm further envisages increasing the amount of protection it writes on credit-default swaps referencing asset-backed securities and will focus on consumer receivables and residential mortgages in this area, according to Kahn.
Other structured deals FSA is turning its attention to this year include senior secured collateralized loan obligations, in which the insurer is already active, and middle market loan CDOs, Kahn added. The insurer is also evaluating guaranteeing tranches of market value and trust-preferred structures, he said.
