Issuance of hybrid collateralized debt obligations of asset-backed securities is overtaking issuance of straight cash CDOs of ABS. Hybrid CDOs allow structurers to tap both cash and synthetic ABS, and are a natural offshoot of the single-name market kick started late last year, said officials speaking at the ABS West Conference in Phoenix, Ariz., last week.
"Hybrids take advantage of the best ideas and efficiencies of both markets," said James Frischling, managing director and head of U.S. structured credit group at Fortis Securities in New York. Cash-flow CDOs have increasingly large buckets of synthetics, said Algis Remeza, v.p. and senior structured finance analyst at Moody's Investors Service in New York. "We see lots and lots of hybrids, and almost no cash," said Paul Watterson, a partner at Schulte Roth & Zabel in New York. Even monolines have started allowing small buckets--five to 10%--of synthetic ABS within cash CDOs, said Steve Murray, director at MBIA Insurance Corp. in New York.
