Morgan Stanley Dean Witter is structuring a synthetic collateralized loan obligation on a EUR1.3 billion (USD1.2 billion) basket of credit default swaps. The deal, dubbed Europower I, is structured on a basket of 130 European names with typical sizes of EUR10 million (USD9.24 million), according to an official familiar with the deal. Officials at MSDW declined all comment.
The underlying credits are well known European names including Spain's Banco Santander Central Hispano and tobacco giant British American Tobacco.
The deal is split into a first-loss tranche (0.5%), a mezzanine tranche (6%) and a
super-senior tranche (93.5%), according to the official. Investors can buy into the mezzanine tranche via credit-linked notes, which are expected to be rated AA, A, BBB and BB. Initial marketing information on the Europower I deal did not include coupons on the various tranches, he noted. The deal is non-callable and has a bullet maturity with a maximum of 5 1/2 years.
Most deals of this type are structured as private placements but the Europower I transaction is relatively unusual as it will be a public deal, according to the official. An analyst at Standard & Poor's in London, which is rating the synthetic CLO, declined comment, noting that details of the structure have not yet been finalized.
The official said Europower I has all the hallmarks of an arbitrage deal, rather than a balance sheet transaction, as the latter would have a maturity identical to the underlying loans and would be callable because banks issue callable loans.
