UBS Warburg is structuring a synthetic collateralized debt obligation based on a $2 billion reference pool of Aaa/Aa rated asset-backed securities. The deal, dubbed North Street 2001-3, is unusual as it is one of only a handful of publicly rated synthetic CDOs on a reference pool that is not composed of corporate debt, according to an official familiar with the structure. It could not be determined by press time whether the transaction is intended to remove credit risk from UBS' own balance sheet or if the deal is on behalf of a customer. Calls to UBS officials were not returned.
According to a preliminary offering document obtained by DW, North Street 2001-3, a Cayman Trust, enters a $160 million (notional) credit default swap with UBS and receives premium in return. North Street then issues $100 million in Aa2 rated notes that pay approximately 100 basis points over three-month LIBOR, and $60 million in Baa1 rated trust certificates that pay some 350bps over three-month LIBOR. Both securities have an expected average life of 13 years. The trust uses proceeds from the sale of the notes and certificates to purchase Aaa rated securities under a repo agreement with UBS to meet obligations on the securities. Investors bear the risk of losses up to the full $160 million resulting from credit events in the reference pool.
The deal is rated by Moody's Investors Service. An official at Moody's in New York declined comment on the North Street transaction because the deal has not yet closed.
Bear Stearns is also listed on the offering documentation. The firm's role in the North Street transaction could not be determined by press time and officials at Bear Stearns did not return calls.
