Crédit Lyonnais has started offering institutional investors capital protected exposure to the equity tranches of synthetic collateralized debt obligations. Martine Boutinet, head of global investor sales in Paris, said the firm is selling medium-term notes in which the coupon is linked to the equity tranche, but the principle is invested in the AA or AAA MTN issuer.
The coupon on the note depends on the performance of the equity tranche. For example, if the equity slice of the CDO is 5% and there is a 1% loss, the coupon on the MTNs falls by 20%, explained Boutinet. The notes' maturity is 10 years, but the maturity of the CDO portfolio is five years. The coupon for the second five years is equal to the last coupon of the first five years.
Boutinet said it started offering the products because of investor appetite for guaranteed products.
