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Derivatives

Hypo Structures EUR1.6 Billion Promise CDO

HypoVereinsbank has structured an innovative EUR1.6 billion (USD1.4 billion) synthetic collateralized loan obligation that offers investors exposure to medium-sized German corporates, according to an official at the bank in Munich. The deal contains a static pool of loans, differentiating it from the only other securitization Hypo has done under the Promise banner with German state-owned bank KFW. That deal, as well as all the other Promise deals KFW has been part of in the last two years, had revolving pools of loans. The official said the static pool was used for economic reasons but declined to quantify any cost benefit.

In this deal, HypoVereinsbank has consolidated more than 3,000 KFW-backed loans it has extended to small and medium-sized German corporates. The consolidated pool is then used as a reference entity for the synthetic deal. The deal has been structured to reduce risk capital from the HypoVereinsbank's book; it also affects KFW's book since it has an ownership stake in the bank.

The four-year deal is being marketed to potential investors now and is likely to be priced later this month. The official said the bank has a large remaining portfolio of similar loans that it plans to lay off in future deals given their popularity but declined to quantify the portfolio or say how active an issuer HypoVereinsbank will be.

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