Société Générale plans to structure a privately-placed EUR500 million (USD459 million) synthetic collateralized debt obligation next month referenced to a static pool of approximately 70 credit default swaps. Wissem Bourbia, head of the European CDO group in Paris, said it is structuring the CDO because it has received requests from investors wanting to buy into the equity tranche. He added once the equity is in place it can structure the remainder of the deal around it even though it only makes up 3% of the structure. In return for investors signaling their interest early in the deal they can handpick the credits they want exposure to, which is the normal way of structuring privately-placed CDOs, according to Bourbia.
Some 95% of the CDO will be referenced to European-based credits with the remainder coming from North America. Bourbia said the U.S. is under-represented because investors think U.S. downgrades will outpace those in Europe.
Bourbia said the firm is waiting until the middle or end of next month to issue the CDO because most investors are on vacation. The indicative tranching shows investors can buy into the CDO via a credit default swap, which makes up 89% of the transaction or through three credit-linked notes. The triple-A rated notes account for 2%, the double-A will be 3.5% and the triple-B will be 2.5%. The remaining 3% will be the equity tranche. Moody's Investors Service is rating the deal.
