U.S. Banks Pitch CDOs Of CDOs
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U.S. Banks Pitch CDOs Of CDOs

Derivatives powerhouses including Morgan Stanley, Salomon Smith Barney, JPMorgan, UBS, Deutsche Bank and IntesaBCI are pitching collateralized debt obligations of CDOs. One investor who has held discussions with investment banks about the new issues, said these are many of the firms' first such products in the U.S. market.

William May, managing director-derivatives at Moody's Investors Service in New York, said the products are fast becoming one of the most popular instruments in the U.S. CDO market. "Moody's has already rated three such deals in New York and there is a huge pipeline of them waiting to be rated," he noted. In response to the deluge of products being presented to the agency, Moody's is working to develop its methodology for rating the products, said May.

Matthew Zola, managing director and co-head of structured products at Morgan Stanley in New York, said his firm has a number of CDOs of CDOs and CDOs of ABS in the pipeline, in response to increased interest from investors, including insurers, banks and money managers.

Triton Partners is structuring a USD300 million CDO of CDOs, according to an official familiar with the deal. The CDO will be referenced to investment-grade tranches of cash and synthetic deals. The CDO is expected to close early next year.

A large motivation in offering these products lies in their ability to transfer CDO and ABS risk from a bank's balance sheet, particularly in difficult markets, said the investor. Greater maturity in the CDO market and more familiarity by investors with CDO structures is also encouraging banks to develop the new issues, noted a credit derivatives strategist. For many investors there is a perception that the credit market is turning around and now is the time to buy, noted one CDO structurer.

Officials at UBS declined comment. Officials at Salomon Smith Barney, JPMorgan, Deutsche Bank and IntesaBCI did not return calls.

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