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Derivatives

Speakers Divide On Managed Single Tranche CDOs

Although managed single-tranche collateralized debt obligations are dominating market buzz, investors and some managers are unsure whether they will become a significant portion of the market.

Although managed single-tranche collateralized debt obligations are dominating market buzz, investors and some managers are unsure whether they will become a significant portion of the market. "We have been talking to almost every dealer on the Street about this," said Yuri Yoshizawa, a managing director in the derivatives group with Moody's Investors Service in New York. In single tranche deals, a specific portion of risk in a CDO structure is transferred to the investor. This allows for a highly customized product where the investor can define portfolio composition, credit rating and tranche size and subordination.

Yet according to James Rothman, a managing director and head of the structured credit group with ACA Capital in New York, investors haven't made a final decision on how much value a manager brings to the product. And from the managerial point of view, single-tranche transactions are a nice side business, but they never dominate profit and loss statements, he said. "[The business] has developed more slowly than people would like to think, but it's coming along," he said.

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