Japan Accounting Changes Fire Up CDO Players

Credit houses in Japan are preparing for a wave of collateralized debt obligation transactions because of an unexpected easing of planned rules on valuing CDO holdings.

  • 14 Apr 2006
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Credit houses in Japan are preparing for a wave of collateralized debt obligation transactions because of an unexpected easing of planned rules on valuing CDO holdings. "This should renew interest in the market and bring in more people from the sidelines," said Brett Clancy, director in credit structuring at IXIS Corporate & Investment Banking in Tokyo. "It could at least double the potential client population."

The initialAccounting Standard Board of Japan proposal would have only CDO transactions rated AA or higher by two agencies as being exempt from a mark-to-market accounting (DW, 2/10). ASBJ Guidance No. 12, however, states that rather than strictly defining a low-risk product as AA or higher, the interpretation of a low-risk product that can be held to maturity and avoid mark-to-market accounting is open to the interpretation of the investor.

"There's a good early buzz around this," said Dean Rostrom, managing director in global CDOs at Deutsche Bank in Tokyo. "The outcome is quite different than the initial proposal."

The liberalization reflects the local will to allow investors to move into instruments offering greater returns than the super-low domestic bond yields. That investor desire has made the Japanese market a prime target for Asia Pacific CDO businesses. Investors that had previously shied away from CDOs due to mark-to-market accounting issues now have greater flexibility in terms of the rules.

Until the final rules, officials explain that, for example, BBB could be set as the rating hurdle. This would open the door wider for the type of deal that can be structured, and bring in yield-hungry clients, such as smaller regional banks. "I'm very bullish, but it may take some time for clients to figure the full effects," added Rostrom.

Dealers expect interest for both domestic and global CDOs, primarily on the investment-grade side, and several houses have already noted a pickup in inquiries for such deals in the last few weeks. "This invites greater choice and flexibility," said Clancy.

  • 14 Apr 2006

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 281,642.23 1086 8.16%
2 JPMorgan 270,584.56 1179 7.84%
3 Bank of America Merrill Lynch 253,429.76 853 7.34%
4 Barclays 210,456.38 780 6.09%
5 Goldman Sachs 188,752.91 614 5.47%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 BNP Paribas 37,171.06 156 6.65%
2 JPMorgan 34,910.99 67 6.25%
3 SG Corporate & Investment Banking 30,338.70 112 5.43%
4 UniCredit 29,482.91 134 5.28%
5 Credit Agricole CIB 27,998.53 136 5.01%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 11,322.29 47 9.04%
2 Goldman Sachs 10,369.68 49 8.28%
3 Citi 9,134.57 51 7.29%
4 UBS 6,515.43 25 5.20%
5 Morgan Stanley 6,459.47 42 5.16%