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Derivatives

Credit Suisse Upsizes Synth RMBS CDO

Credit Suisse has upsized Magnolia 2006-6, a synthetic high-grade residential mortgage-backed securities collateralized debt obligation, by over twice its original size.

Credit Suisse has upsized Magnolia 2006-6, a synthetic high-grade residential mortgage-backed securities collateralized debt obligation, by over twice its original size. The deal was extended to USD5.1 billion last week, from USD1.92 billion when it closed in April. Fiachra O'Driscoll, managing director in fixed income and head of synthetic CDO trading at Credit Suisse in New York, said the deal was "massively oversubscribed" and underscores the increasing popularity of highly-rated synthetic ABS CDOs.

Magnolia 2006-6 references exclusively AAA and AA RMBS. O'Driscoll said AAA RMBS, which is wide to its historic tight spreads, has greater relative value than BBB RMBS, which is now at record tights. And investors, particularly foreign investors, are more comfortable leveraging high-grade notes because of concerns about the U.S. housing market. Magnolia 2006-6 began as a reverse inquiry in Europe and has been placed globally in multiple currencies.

O'Driscoll said there is strong investor demand for high-grade commercial MBS for the same reasons. A previous deal in the series, Magnolia 2006-4, referenced AAA CMBS and Credit Suisse now is working on another high-grade CMBS deal, Magnolia 2006-8.

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