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UBS Plans Its First European Counterparty Credit Risk CDO

01 Sep 2002

UBS Warburg is structuring a EUR1.5 billion (USD1.48 billion) collateralized debt obligation, which is its first euro-denominated securitization of counterparty credit risk from its derivatives books. It will be marketed primarily to European investors, but the underlying collateral will be globally diversified, according to an official familiar with the transaction. The purpose of the deal is to shed credit risk and is a joint venture between the firm and its largest clients. The deal allows UBS to take on more credit risk. Officials at UBS declined comment.

The transaction is the second time UBS has sold such a structure--the first was a USD750 million deal called Alpine, launched at the beginning of last year (DW, 10/17/00).

UBS is expected to issue the deal in the next few weeks. In the structure, UBS enters a credit-default swap on a dynamic portfolio, which allows for substitution and is composed of interest rate and currency swaps with Alpine II, a special purpose vehicle. The spv then issues the credit-linked notes. UBS retains the equity tranche of the deal, said the official, adding that there will be five tranches. The size and rating of the tranches, as well as the number of credits in the portfolio, has not yet been finalized. Spreads on the tranches will be similar to balance sheet CDOs.

The CDO has bullet structure with a seven-year maturity and is non-callable for five years. The Alpine II transaction, however, has an amortizing structure, where portions of the principal are repaid annually.


01 Sep 2002