Babcock & Brown, a boutique investment bank specializing in asset aquisition and corporate financing strategies, plans to stage its debut in the structured credit arena by launching a static synthetic collateralized debt obligation with a twist. Richard Griffin, head of capital markets product development in San Francisco, said the product will be referenced to a global pool of 50-100 default swaps, but will contain embedded event protection against risks as diverse as corporate frauds, terrorist acts and natural catastrophies.
Events such as the September 11 terrorist attacks and corporate frauds such as Enron, have harmed the performance of many CDOs, however thus far structurers have not addressed these risks, he said. Griffin declined to detail exactly how the event protection would work, although noted that the CDO would be robust against most event risks except global systemic economic risks, such as a severe worldwide recession.
The deal, dubbed PAERS (Protection Against Event Risk Securities), will be around USD1 billion and is set to launch in the summer. Babcock is in talks with investors as well as ratings agencies, according to Griffin, noting that the largest marketing challenges facing the firm are the current spread environment and educating investors to the benefits of the structure. He declined to name the underwriter for the CDO.
