Goldman Sachs is shopping a USD1 billion (notional) portfolio credit default swap deal. Called Orion, the portfolio gains USD10 million of exposure to each of 100 credits via selling protection in the single-name credit default swap market. Investors can sell five-year protection on tranches of the entire portfolio, with more senior tranches generating less premium. The first loss position is 2.75%. The tranches are unrated according to an official on the buy side.
Orion is one of a slew of deals in the market place with similar structures. Investors can gain synthetic exposure to a portfolio of credits in one fell swoop rather than trying to assemble the portfolio themselves. Although the underlying credits are rated, the portfolio as a whole is unrated, which limits the number of investors that can participate, but cuts costs--getting a portfolio rated can reduce the premium investors would earn. Over the last several months, the market has grown more comfortable with unrated deals, according to a market official in New York. Officials at Goldman did not return calls.
