Pacific Investment Management Company, the 800-pound gorilla of the institutional money management industry with assets in excess of USD253.7 billion, plans to issue its first synthetic managed collateralized debt obligation. The CDO, named Channel, will be referenced to a USD1 billion portfolio of credit-default swaps and cash instruments, according to a market official familiar with the transaction. Officials at PIMCO and Goldman declined comment.
In previous CDOs PIMCO has not issued an unfunded super senior tranche, which has prevented it from investing in credit-default swaps. However, the fund manager has invested in credit-linked notes and has used default swaps in other areas of the firm since 1999.
CDO investors said even though PIMCO does not have a track record in synthetic CDOs, its name and excellent reputation will lend weight to the deal.
The CDO is similar to Jazz, which AXA Investment Managers and Deutsche Bank started structuring last year (DW, 11/11). However, that deal used a liquidity facility to cover losses on its credit-default portfolio and could change the proportion of its funded versus unfunded investments. In this structure PIMCO uses a market value method to cover payouts on its default swaps and will keep the proportion of unfunded assets at around 90%.
