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Derivatives

Calyon Launches Commodity CDO Twist

Calyon is road showing a rare hybrid collateralized debt obligation that packages synthetic exposure to credit and commodities.

Calyon is road showing a rare hybrid collateralized debt obligation that packages synthetic exposure to credit and commodities. The underlying portfolio comprises half credit-default swaps on corporate bonds and half commodity trigger swaps--out-of-the-money put options on individual commodities. The use of these swaps in CDOs was pioneered by Barclays Capital at the end of last year (DW, 12/9/05), but Calyon is believed to be the first firm to follow suit.

An official close to the French firm said the asset class offers high yields, low correlation to credit and portfolio diversification. The trigger level of the commodity swaps could not be determined, but it has been structured to reduce the likelihood of losses and to achieve a AAA-rating from Standard & Poor's. Officials from Calyon declined comment.

Dubbed Alchemy, the CDO features a five-year maturity, which is a move away from seven-year transactions that currently dominate the market. It is being marketed to institutional investors in the U.S., Europe and Asia and is expected to raise around the USD100 million.

Separately, Calyon, together with Greenwich Conn.-based manager NIBC Credit Management, has raised a mammoth USD1.3 billion on its asset backed-securities cash/synthetic hybrid CDO Orion (DW, 5/12). Credit watchers say the firm is eyeing a second tap of the deal.

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