Lenders are securitizing portfolio credit-default swaps on balance-sheet bank loans. According to Derivatives Week, a CIN sister publication, Credit Suisse and Citigroup both issued such CLOs this month and ratings analysts said they have seen proposals from firms across the Street interested in doing more.
Credit Suisse's Sphynx CDO 2006-7 raised about $1.092 billion this month and references Credit Suisse's own book of investment-grade bank loans. Fiachra O'Driscoll, managing director in fixed income and head of synthetic CDO trading at Credit Suisse in New York, said it was oversubscribed and placed with a variety of investors in Europe, Asia and the U.S.
Citigroup this month closed its third fully synthetic deal in a series of balance sheet CLOs, called Beach Street I, II and III. Those deals, collectively valued at $2 billion, offer 70% fixed recovery on primarily non-investment grade bank loans. Credit officials said they reference a broader selection of credits than are traded as single-name, loan-only credit-default swaps, noting only 30% of the 166 names referenced across Beach Street deals can be found in the LCDS market.
Citi plans to close a fourth Beach Street deal this fall. Bank of America reportedly has issued a similar deal, but details could not be determined and officials declined comment. UBS was first to issue a fully synthetic CLO late last year, but has not followed it up. Officials at the Swiss firm said it is hiring more staff to look at doing this.
