ING Barings plans to structure in the next six months what several rivals are calling the first synthetic collateralized debt obligation in Asia referenced to a portfolio of synthetic CDOs. "This sounds innovative," said a credit structurer at a rival firm in Singapore, adding that he had not seen this type of deal before. However, the structurer noted, "it might be difficult to sell this in Asia. There will be a lot of education involved." But a credit structurer at ING said there is now sufficient appetite for the product, because of falling yields in traditional fixed-income products and growing sophistication about CDOs among end-users.
The portfolio will likely be actively managed by one or two asset managers, according to the ING structurer, who declined to name the potential managers. He continued that investors are more comfortable investing in a managed portfolio, which has checks and balances to insure a reasonable return. As investors will not be familiar with the structure the deal is likely to be smaller than normal CDOs, at approximately USD150 million.
The reference portfolio will include mezzanine tranches of existing CDOs from the U.S. and Europe structured by ING and other market makers. It may also include tranches of asset-backed securities, said the official. Investors will be able to buy into the deal through credit-linked notes ranging from Baa2 to AAA. The maturity will be 10 years with the average maturity of assets in the portfolio around seven years.
