Salomon Smith Barney is close to completing its first managed mezzanine synthetic collateralized debt obligation in Asia. In the USD500 million five-year deal investors in the mezzanine notes will be able to rebalance up to 10% of the portfolio each year. "The recent deterioration in 'investment-grade land' and the underperformance of some managed deals, [means] some investors feel they can manage their investments more effectively themselves," said James Lee, managing director and head of Asia-Pacific CDO markets in Hong Kong. Investors have full control in selecting the credits in the initial portfolio.
Around 20% of the reference portfolio of 100 credits will consist of Asian underlyings and the remainder will be referenced to U.S. and European credits. SSB will delta hedge the senior and equity tranches.
Lee said the structure is a recent innovation in Asia, estimating that only about five of these deals have previously been sold in the region. "Baring unforeseen events the volume should easily double this year," he added. CDO structures in Europe and the U.S. also expect these products to be hot this year (DW, 11/18). Lee joined SSB last year from Credit Suisse First Boston with a mandate to build up its CDO business. SSB plans to hire four staffers this year to increase its capacity to structure and market the instruments.
