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Derivatives

RBC Hedges ABS Portfolio With Synthetic CDO

RBC Capital Markets has structured a synthetic collateralized debt obligation to hedge a USD2 billion portfolio of U.S. asset-backed securities.

RBC Capital Markets has structured a synthetic collateralized debt obligation to hedge a USD2 billion portfolio of U.S. asset-backed securities. The USD157.8 million, multiple tranche transaction will reference a minimum of 70% AAA-rated ABS, with the remainder rated at least A. The portfolio is expected to comprise more than 70 obligations, including collateralized loan obligations, mortage-backed securities and home equity. Walter Gontarek, managing director and head of global credit products at RBC in London, declined comment.

RBC is marketing the CDO to investors globally and will also act as trade manager. The firm has the right to add new assets or make substitutions during set periods to maintain the portfolio amount of USD2 billion. The deal is expected to be priced this month and closed in mid-September. Standard and Poor's has assigned a preliminary rating of AAA to the CDO's super senior tranche, AA plus to the mezzanine and AA minus to the first loss basket.

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