Crédit Agricole Indosuez is planning to double its pipeline of synthetic CDOs and bespoke tranches this year and will start marketing a USD1 billion synthetic transaction in the coming weeks. The transaction, called Momentum, will include synthetic exposure to high quality corporate names, according to Loic Fery, executive director and global head of credit derivatives and structures at CAI in London. The firm is retaining the equity tranche and offering four tranches rated between AA and BBB.
Fery said the firm structured over EUR15 billion (USD16.04 billion) of CDOs along with numerous stand-alone bespoke tranches and intends to double its activity this year. Fery said investors have started to split into two groups, one is focusing more on transparency and credit quality because they got burnt in the credit crunch of last year. Those seeking highly-rated transactions are asking for spreads at around Euribor plus 90-100 basis points for AA risk and the second is looking to arbitrage rating methodologies and is asking for spreads of Euribor plus 180-200bps for the same rating.
Fery estimated three-quarters of investors are focused on quality collateral deals, but said a larger percentage of deals are targeted at those investors seeking the greater arbitrage.
CAI also plans to add kickers to the mezzanine tranches. At the end of last year several firms began adding enticements to the mezzanine tranches--such as spread trapping or equity upside participation--to entice investors (DW, 8/19).
