Equity Tranches Trump Demand For Leveraged Super Senior

Leveraged super-senior CDO tranches, popular since the spring, are losing favor, replaced in recent weeks by growing interest in equity tranches across all maturities.

  • 07 Oct 2005
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Leveraged super-senior CDO tranches, popular since the spring, are losing favor, replaced in recent weeks by growing interest in equity tranches across all maturities. Atish Kakodkar, director and head of global credit derivatives strategy at Merrill Lynch, said recent protection selling pressure on super-senior tranches has squeezed value into junior tranches.

"Super senior's pretty much gone away," agreed an official at a rival firm. "It had its day over the summer, but now because the spreads are so tight, it's hard to structure new deals." Pressure from investors fleeing tightening mezzanine tranches after last spring's correlation disruption and crowding into less risky, but higher-valued, leveraged super-senior tranches caused those spreads to tighten, forcing relative value down to the most risky and traditionally less popular equity tranches.

Jeff Meli, director and head of U.S. structured credit and quantitative strategy, at Barclays in New York, said equity tranches have low correlations and look cheap right now. But investors are nervous about buying equity because those prices looked cheap last spring and kept falling. "There is still value in other areas," said one official, but "the highest relative value has shifted into equity." That is where he sees both sophisticated investors and investors less comfortable with equity risk. For those clients, dealers are offering principal-protected equity tranches and callable notes.

  • 07 Oct 2005

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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  • Today
1 Barclays 20,041.00 34 7.66%
2 Citi 18,215.95 71 6.97%
3 JPMorgan 16,098.67 49 6.16%
4 Goldman Sachs 15,821.46 36 6.05%
5 HSBC 15,568.27 47 5.95%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 48,528.41 214 6.32%
2 Deutsche Bank 44,075.51 161 5.74%
3 BNP Paribas 41,452.79 240 5.40%
4 JPMorgan 37,278.65 134 4.85%
5 SG Corporate & Investment Banking 36,258.27 187 4.72%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 Goldman Sachs 1,607.28 5 28.64%
2 Credit Suisse 1,301.65 4 23.20%
3 BNP Paribas 522.35 4 9.31%
4 SG Corporate & Investment Banking 444.17 3 7.92%
5 Morgan Stanley 331.78 2 5.91%