AXA Investment Managers is planning to structure its first emerging market collateralized debt obligation in the coming months. The CDO, dubbed Symphony in continuation of a musical theme started with its Jazz transaction last year, is likely to be a hybrid synthetic and cash deal of around USD300 million, according to an official familiar with the transaction. The European asset manager has teamed up with Morgan Stanley to structure the 12-year deal. Officials at Morgan Stanley and AXA Investment Managers declined comment.
The reference portfolio will consist of emerging market sovereigns and corporates, but will also include some corporate debt from the U.S. and Europe. The official said the reference portfolio is likely to be investment grade even though it is emerging market debt because many traditional emerging market assets, such as Mexican and Chinese sovereign debt, are now investment grade.
Another official said a covenant in the CDO will prevent credit derivatives from accounting for more than 10% of the reference portfolio because of concerns over restructuring as a credit event. If there was a liquid default swap market that did not include restructuring as a credit event, Morgan Stanley and AXA would likely have increased this proportion. A covenant in the term sheet states that the proportion of default swaps cannot be increased, even if swaps without the restructuring credit event definition become more liquid during the CDO's life.
