Merrill Lynch plans to structure a managed synthetic collateralized debt obligation by the end of the first quarter. The deal is likely to be referenced to a EUR750 million (USD643 million) pool of investment-grade credits, according to Hermann Watzinger, managing director and head of securitization and portfolio credit derivatives in London. He added that the reference pool will be split into 80% European names and 20% U.S. names because investors have more appetite for European corporates.
Investors will be able to buy into the deal through credit-linked notes or credit-default swaps. It will also have a 4-5% equity tranche, according to Watzinger. The firm has not yet decided whether to issue the CDO as a public or a private transaction. Watzinger said the advantage of a private transaction is that the firm does not have to create a special purpose vehicle, whereas a public transaction would give the firm publicity.
