UBS Securities has ditched plans to issue a collateralized debt obligation of CDOs through its principal finance unit and has liquidated the portfolio of bonds it had accumulated to underlie the deal. UBS had initially been planning to sell the liabilities of Cherry Valley, a repack of senior CDOs, says one official familiar with it. But an improvement in CDO liquidity led to tighter spreads since the collateral had been acquired, reducing the deal's arbitrage. And with accrued profits on the CDOs that had intended to be repackaged, the firm decided to liquidate the portfolio of CDOs and realize its gains, officials add. John Niblo, managing director at UBS in Stamford, Conn., declined to comment.
Cherry Valley was intended to be backed by senior CDOs, particularly those comprised of asset-backed securities and leveraged loans, says one official. It could not be determined to whom UBS sold the underlying bonds.