INVESCO, BlackRock, Barclays Global Investors and Blackstone, which were separately planning to bring their first managed synthetic collateralized debt obligations to market last year, have reportedly postponed the deals because of adverse market conditions. BGI has shelved plans to manage its first CDO in the U.S. because of a lack of investor appetite and tight credit spreads, according to Tom Taggart, spokesman in San Francisco. The deal was scheduled to be priced in the summer (DW, 5/19) was postponed and then cancelled. An official from Blackrock in New York said the firm has structured its first synthetic CDO but is waiting for better arbitrage opportunities between the asset and liabilities side of the deal. One official said those opportunities are likely to resurface when insurance companies clarify their long-term commitment to the CDO market. He expects this to happen in the coming weeks. Bill Hensel, spokesman at AMVESCAP, INVESCO's parent firm in Atlanta, Ga., declined comment and Christine Hadlow, spokeswoman at Blackstone in New York, didn't return calls by press time.
From October onwards spreads on high-grade names have tightened, which means CDOs are not offering investors large spreads, according to a CDO professional. A typical collateral spread on credit-default swaps tightened to around 140 basis points at year-end from as high as 280bps in October, noted one New York-based CDO pro. The lack of investor appetite has caused the liabilities side to widen. Super senior tranches are now priced at around 15-18bps from 13-15bps in October and AAA tranches have also blown out to around 70bps from 55-60bps in the same timeframe.
Part of the liabilities spread widening can be attributed to insurers and reinsurers pulling back from the CDO arena. For example Financial Security Assurance stepped back because of losses, Ambac Assurance Corp., will not participate in certain types of CDO because of the restructuring clause in credit-default swaps and MBIA said it is reviewing its portfolio.
