Structured credit professionals are putting esoteric asset-backed securities, such as aircraft leases and manufactured housing, into synthetic collateralized debt obligations to boost yield. Firms are increasingly pushing multi-sector ABS deals, which also include a percentage of investment grade credit-default swaps, explained one investor. He added that he is not interested in these deals because these industries are in a bad way and even where they offer strong yields it is a lot of risk.
Typically the ABS provides stability in the structure while the investment grade corporate gives yield, however, more are adding esoteric ABS to ramp up returns, said the investor. Esoteric ABS can represent as much as 20% of some of these portfolios.
Similar types of ABS have been included in cash collateralized debt obligations for a long time, but synthetic structures have started off with more stable assets, noted one credit derivatives professional.
