Boutique's CDO Debut Will Have Novel Twist
Babcock & Brown's impending synthetic collateralized debt obligation debut will pair up each of the credit-default swaps in its reference pool, making a structure that rivals have not seen before, according to one official familiar with the structure.
In the deal, dubbed PAERS (Protection Against Event Risk Securities), the USD1 billion reference pool will comprise 50-100 credits, which are paired to other names to which they have little correlation, said the official. This means that both reference entities have to fall foul of one of the credit-event triggers for the deal to lose money.
The deal is designed to protect against event risks, such as fraud, terrorism and natural catastrophes (DW, 5/18).
Jan Scholes, general councel in San Francisco, declined comment. She noted, however, that "a patent has been filed covering the product's critical financial technology."