Macquarie Bank is considering structuring a synthetic collateralized debt obligation in Australia by year-end, which would be a first for the Sydney-based bank. "We're looking at this," said Gary Vassallo, head of derivatives. He continued that the bank currently has the in-house capabilities, given its active credit structuring desk, which has been handling products such as credit-linked notes and asset-backed securities.
Vassallo continued that given that CDOs are still new in Australia, with only a few end-users having the mandates for such products, initial sizes would likely be in the low hundreds of millions of dollars. However, Vassallo said CDOs could catch on in Australia in the same way as asset-backed securities and mortgage-backed securities whereby after a few CDOs are structured, more and more investors will be knowledgeable about the product and look to widen their mandates, creating strong demand. He added that it was too early to determine if Macquarie will look to structure a portfolio with only domestic names, which clients would be more familiar with, or include global credits to add diversity but may be outside investor mandates. "It's a double-edged sword," said Vassallo.
"I wish them luck," noted a credit head in Sydney, noting that while the development of CDOs would be a positive in Australia, there is likely a limited number of end-users that would be interested. He continued, Macquarie would need to incorporate global credits as there are only a limited number of liquid Aussie names.
