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Bear Stearns, CDC Roll Out USD1B CDO

Bear Stearns and CDC IXIS Capital Markets are co-agenting a synthetic collateralized debt obligation referenced to a USD1 billion pool of investment grade bonds. The structure, dubbed GIA Investment Grade CSDO 2001/2 Ltd., is relatively unusual in that the reference pool will be actively managed, according to an official familiar with the deal. To date this type of structure has been primarily used by banks looking to lay off risk, whereas the reference portfolio in this transaction will be created to take on risk, he added. Officials at Bear Stearns declined all comment, citing Securities and Exchange Commission rules preventing disclosure.

The reference pool will be managed by Global Investment Advisors (GIA), a subsidiary of Reich & Tang Asset Management in New York, which is ultimately owned by CDC. Calls to CDC were rereferred to Reich & Tang. Richard Smith, president & ceo of Reich & Tang, said the European roadshow was completed last week.

GIA is putting together its first synthetic CDO now because it believes spreads in the corporate market are wide and do not reflect the underlying quality of credits, the official continued. According to preliminary marketing materials, the reference portfolio will consist of a minimum of 100 credits in industries including utilities, oil & gas, telecoms, chemicals and autos. Exposure to a single industry likely will be limited to a maximum of 13%.

Investors will be offered approximately USD96 million in four tranches, rated from AAA down to Ba2/BB-, said a potential investor. Last week price talk indicated the AAA rated notes would yield three-month LIBOR plus 45 basis points and the Ba2/BB- rated notes would be priced at three-month LIBOR plus 700bps. The deal will also consist of a USD904 million credit-default swap.

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