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Derivatives

Merrill Lynch, BGI To Upsize Hybrid CDO

Merrill Lynch and Barclays Global Investors are planning to upsize Anderson Valley, a hybrid cash and synthetic investment-grade arbitrage collateralized debt obligation.

Merrill Lynch and Barclays Global Investors are planning to upsize Anderson Valley, a hybrid cash and synthetic investment-grade arbitrage collateralized debt obligation. The U.S. version of the deal priced Friday at USD1.6 billion and may be upsized by about USD1 billion. The European version has not yet priced but is expected to be about EUR300-400 million.

Anderson is similar in structure to Jazz III. It includes two independently managed portfolios: a high-grade portfolio makes up 97% of the deal and a CDO bucket, which can include anything at all, makes up 3%. BGI can also offset certain credit exposures in the portfolio by purchasing credit protection in the form of credit-default swaps. According to the Moody's Investors Service presale report, this level of flexibility is an advantage to investors, although the report also notes it could add to the volatility of the structure. Officials at Moody's, Merrill and BGI did not respond to messages.

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