Société Générale plans to set up a synthetic collateralized debt obligation program with reinsurance companies and asset managers. The firm is looking for one or two asset managers and reinsurance companies and expects to structure three or four managed synthetic CDOs a year, according to Wissem Bourbia, head of CDOs in Paris. He added that to his knowledge the French bank is among the first to set up such a scheme. Each deal would be a minimum of EUR500 million (USD464 million).
Jeremy Vice, head of CDOs at Dresdner Kleinwort Wasserstein in London, said several firms are looking at this type of arrangement at the moment but none have come to the market publicly. He added that most synthetic CDOs are structured with static pools rather than managed pools because they are referenced to investment grade assets, which means there is not much juice left over for manager fees.
SG is working on a blue print deal at the moment. Bourbia said, "The format is the same. It is only the portfolio which will change." He expects this one to come to the market in the next couple of weeks and to be referenced to a USD6-800 million portfolio of credit default swaps. SG is structuring and managing the deal to establish a track record it can then use to approach asset managers and reinsurers. In the firm's plans the asset manager would actively manage the portfolio and take a portion of the equity tranche. Due to the volume of deals SG is considering Bourbia thinks it is necessary to work with a reinsurer which would also be interested in taking a portion of the equity.
The firm is looking at the partnership now because the number of asset managers, which have expertise in credit derivatives, has increased enough to allow it to select managers for the program.
