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Derivatives

CIBC Structures Debut Synthetic CDO

CIBC World Markets is structuring its first synthetic collateralized debt obligation and, unusually, over 50% of the credits come from its native Canada. David Allan, managing director and head of Canadian securitization in Toronto, said the CDO is referenced to a USD1 billion slice of the Canadian Imperial Bank of Commerce's CAD80 billion (USD51 billion) corporate credit portfolio.

The structure, dubbed Imperial 1, is designed to remove credit risk from the bank's loan portfolio to allow it to execute more profitable business and receive the most amount of economic capital relief. However, Allan said bonds will also be eligible for the portfolio. One London-based investor is interested in the transaction because it will diversify his portfolio of CDOs, which are mainly structured on European and U.S. credits.

Now that CIBC World Markets has cut its teeth in the CDO market, it plans to do more transactions. "We are open for business," stated Allan. He added that it does not want to compete with bulge bracket players but sees a niche in structuring transactions for CIBC's own portfolio, second or third tier banks without the capability to structure deals themselves and may also do arbitrage transactions.

Investors can buy into the five-year deal via a 5% equity tranche, a 10% mezzanine tranche or an 85% super senior tranche. The mezzanine tranche is split into three credit-linked notes, rated BBB, A and AAA.

 

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