UFJ Bank, created by the merger last year of Japanese Bank's Sanwa Bank and Tokai Bank, is planning to structure its first yen-denominated synthetic collateralized debt obligations and expects to issue up to USD1.5 billion this year. "I expect this will happen within six months," said Hiroyuki Yoshizawa, credit derivatives trader at UFJ. Synthetic CDOs are more attractive investment vehicles for some investors than credit-default swaps because the former can be structured to avoid mark-to-market accounting, he explained.
UFJ will look to complete two or three transactions this year, structured on Japanese credits with a likely minimum size of USD500 million. Yoshizawa added that UFJ will probably keep the equity component of the transaction and sell the rated tranches. He continued that certain investors, including a number of local banks, cannot invest directly in marked-to-market credit products, such as credit-default swaps, due to their mandates. However, synthetic CDOs can be structured as credit-linked loans rather than credit-default swaps and accounting treatment may be classified as loans, allowing investors to buy the product.
