Société Générale is on the verge of bringing out two synthetic collateralized debt obligations of asset-backed securities that will include buckets of specially created synthetic CDOs as well as traditional assets. Didier Campant, a senior v.p. in the London CDO group, says SocGen is pursuing this strategy to provide investors with extra spread. These CDOs will be among the first in Europe to use tailored or bespoke CDOs as collateral.
The two CDOs, which are called Rainbow, are similar except for their maturity--one will be a five-year deal, the other will be seven years. The five-year deal will have 20% of its assets invested in tailor-made synthetic CDOs and the seven-year deal will invest 15%. In total, SocGen has created seven CDOs for the Rainbow deals, each backed by collateral with an average credit rating of A-/BBB+.
Campant says each CDO in the Rainbow deals has been constructed to limit overlap in the underlying names. He says the average overlap is about 26%, while the greatest overlap is 30%.
The deals will each be referenced to separate collateral pools of about E2 billion. They will issue about E100 million in notes each. Each deal will invest 50% of assets in U.S. paper and the balance in Europe. Aside from the tailored CDOs, the deals will invest in residential mortgage-backed securities, credit card ABS, auto ABS and commercial mortgage-backed paper. The deals should hit the market sometime this month.