Duke Funding Management, the collateralized debt obligation arm of USD17.5 billion Ellington Management Group, is pricing a novel cross-currency synthetic CDO with issuer Bear Stearns. The EUR1.1 billion deal, called Duke Funding XI, will consist of 100% credit-default swaps referencing USD1.4 billion in primarily mid-prime residential mortgage-backed securities.
Winnie Fong, analyst at Standard & Poor's in New York, said it is the first deal to issue euro-denominated liabilities to reference U.S. dollar-denominated RMBS assets, and allows European investors access to the U.S. housing market in their own currency. Noteholders experience no currency risk, Fong said, because Bear Stearns is holding the foreign exchange exposure.
It is also the manager's first synthetic CDO under management. Its previous deals, Duke Funding IX and Duke Funding X, were hybrid and structured by UBS (DW, 5/19). The eight deals before those all were cash. Details about Duke's second synthetic deal, which will be called Duke Funding High-Grade II and is in the works, could not be determined.
Richard Daley, portfolio manager for the deal, did not immediately return phone calls and officials at Bear Stearns in New York, declined all comment ahead of its close.
