43.5 billion euros of CDOs sold in first half of 2007

Europe has a fairly large appetite for structured products, as we see increasing prevailance of CDOs being sold. Buoying international yields probably has a positive impact for yields offered by such structured products as well. However, at this point in time I wonder if people also realise that default risks may be slowly creeping into the rosy picture.


CDO Alert: RBC, Morgan Stanley, Fortress Plan Sales in Europe
By Neil Unmack

June 6 (Bloomberg) -- Banks and asset managers sold 43.5 billion euros ($58.7 billion) of collateralized debt obligations in Europe so far this year, 145 percent more than the same period a year ago, according to Deutsche Bank AG.

Collateralized debt obligations are created by packaging bonds, loans or credit-default swaps and using their income to pay investors. CDOs are divided into different portions of varying risk, which can offer higher returns than the debt they are based on or equivalently rated bonds.

Cash CDOs package assets such as bonds or loans. Synthetic CDOs parcel credit-default swaps, contracts based on bonds and loans. Sales of CDOs help push yields lower because they create investor demand for the debt that's packaged into the securities.
The following is a list of planned sales of CDOs in Europe:

Cash CDOs
INVESTEC PLC, part of the South African bank, plans to sell a 310 million-euro CDO backed by mostly European senior secured leveraged loans, according to Standard & Poor's. The transaction is called Gresham Capital CLO IV Ltd. (Added Jun. 1).

ALCENTRA GROUP LTD., a manager of high-risk, high-yield loans owned by Bank of New York Company Inc. and its management, plans to raise a CLO fund called Wood Street CLO V, Fitch Ratings said. The rating firm said it will grade 454 million euros of the debt. Alcentra will have sourced about 60 percent of the assets for the fund by the time the debt has been sold, Fitch said. (Added May 25).

CVC CORDATUS GROUP LTD., the debt management arm of London- based buyout firm CVC Capital Partners, plans to sell bonds backed by European leveraged loans. The transaction, called Cordatus II, will issue about 450 million euros of bonds, denominated in pounds and euros, according to Standard & Poor's. CVC sold its first CLO in December last year. (Added May 21).

INTERMEDIATE CAPITAL GROUP Plc, a U.K. company that invests in loans and bonds used to finance leveraged buyouts, plans to sell 650 million euros of securities backed by mezzanine loans. The transaction, called Intermediate Finance II Plc, will be arranged by Royal Bank of Scotland Group Plc, according to a person familiar with the transaction. (Added May 18).

OCTAGON CREDIT INVESTORS EUROPE, the London unit of New- York-based high yield asset manager Octagon, plans to sell a 350 million-euro CLO backed mainly by leveraged loans. The deal, called Octagon Credit Investors Euro CLO 1, will be completed in June, according to a person familiar with the transaction. Deutsche Bank AG is managing the sale. (Added May 17).

MORGAN STANLEY INVESTMENT MANAGEMENT INC., part of the world's second-biggest securities firm by market value, plans to sell 409 million euros ($556 million) of bonds backed mainly by European senior secured loans, according to a person familiar with the transaction. The deal, called Coniston CLO BV, is Morgan Stanley's second European CLO fund, and will be sold in seven portions of varying risk. Six of the notes will be rated by Moody's Investors Service and Standard & Poor's. Citigroup Inc. is managing the bond sale, which should be completed by the end of June. (Added May 16).

FORTRESS INVESTMENT GROUP LLC plans to sell an 800 million- euro collateralized debt obligation backed by European real estate loans and bonds. The deal, called Duncannon CRE CDO, will be handled by Citigroup Inc. and Lehman Brothers Holdings Inc. The portfolio will include real estate-backed bonds, as well as so-called 'B' loans and mezzanine loans. Fortress will set terms for the bonds in the first half of June. (Added May 16).

ELGIN CAPITAL LLP, a London-based credit fund, plans to sell 400 million euros of bonds backed by largely senior secured loans. BNP Paribas is managing the bond sale, which will be called Dalradian European CLO IV, according to a person familiar with the transaction. (Added May 15).

BNP PARIBAS'S LEVERAGED FUNDS GROUP, plans to sell a 400 million euro collateralized loan obligation, according to a person familiar with the transaction. The deal, called Leveraged Finance Europe Capital V, will be arranged by BNP Paribas. (Added May 15).

FAXTOR SECURITIES BV, an Amsterdam-based credit asset manager, plans to sell 300 million euros of bonds backed by European leveraged loans in a deal called Stravinsky 1 Plc. Wachovia Corp. is managing the bond sale, according to a person familiar with the transaction. (Added May 9).

ACA CAPITAL MANAGEMENT UK, a U.K. unit of New-York-based asset manager and bond insurer ACA Capital Holdings Inc, plans to sell bonds backed by European leveraged loans. The transaction, called ACA Euro CLO 2007-1 Plc, will be lead managed by UBS AG and total about 400 million euros, according to a person familiar with the transaction. (Added Apr. 26).

Synthetic CDO
ROYAL BANK OF CANADA, the country's biggest bank, plans to sell $209 million of bonds linked to U.S. asset backed securities, according to Standard & Poor's. The deal, called Logan CDO III, will issue debt rated from AAA to BBB, S&P said. (Added Jun. 6).

BLACKROCK INC., the largest publicly traded U.S. fund manager by assets, is planning to sell a CDO fund linked to largely investment grade bonds, loans and credit-default swaps, according to a report by Standard & Poor's. The deal called Valleriite, will have a 'short bucket' that will allow BlackRock to buy protection on the high yield bond indexes, S&P said. Merrill Lynch & CO Inc arranged the transaction, which will offer 190 million euros and $380 million of notes, S&P said. (Added May 29).

AC CAPITAL PARTNERS, a Dublin-based credit manager, is planning a $182 million CDO linked to a portfolio of Aaa-rated asset backed securities and collateralized debt obligations worth $2 billion. The deal, called Accolades 1, is being arranged by HSBC Holdings Plc. The deal will issue a $120 million rated Aaa, a 44 million euro bond rated Aa3, and an unrated security, worth 2.3 million euros, Moody's said. (Added May 24).

STANDARD CHARTERED PLC, the U.K. lender that makes most of its money in Asia, plans to sell bonds linked by loans it made to clients, according to an e-mail sent by the bank. The transaction, called Start CLO IV, will allow Standard Chartered to transfer the risk on a pool of 400 loans worth $1.5 billion. Standard Chartered is managing the bond sale. (Added May 29).

BANKINTER SA, a Spanish lender, plans to sell 182 million euros of bonds linked to the riskiest portions of 14 mortgage- backed securities it sold over the last eight years. The deal, called Castellana Finance Ltd, will sell four classes of bonds, rated by Standard & Poor's. Lehman Brothers Holdings Inc. and Bankinter are managing the bond sale. (Added May 23).

DEUTSCHE BANK AG, Germany's biggest bank, plans to sell 238 million euros of bonds based on the default risk of European company loans. Deutsche Bank will buy credit protection on a pool of 166 company loans from Cart 1 Ltd., a company created for the transaction, according to standard & Poor's. Cart will pass the default risk to bond investors. The companies have an average rating of BBB-, said standard & Poor's. (Added May 10).

MERRILL LYNCH & CO., the world's biggest brokerage, plans to sell a collateralized debt obligation based on foreign exchange contracts, the bank said. The so-called CFXO will issue notes in all major currencies and have five-year maturities. Standard & Poor's has rated the CFXO from AAA to BBB. Merrill Lynch is arranging the CFXO, and Credit Agricole Asset Management will manage it. (Added Apr. 4).
Credit CPPI and CPDO

Constant proportion portfolio insurance funds set aside a portion of investors' money to guarantee the initial capital, with the remainder invested in risky assets such as credit- default swaps or bonds.

Constant proportion debt obligations are bonds that earn income by selling credit-default swaps. The funds' leverage is adjusted according to predetermined rules to earn a fixed return for investors. Unlike a CPPI, CPDO bonds are not capital guaranteed. (Added Apr 23. )

FORTIS INVESTMENT MANAGEMENT FRANCE SA, a unit of Belgium's biggest financial services company, is marketing a constant proportion debt obligation, according to a statement sent by ABN Amro Holding NV. The deal, called Degas, will sell 10-year notes rated Aaa and Aa2 by Moody's Investors Service, ABN Amro said. The deal will earn a return by selling protection on credit- default swaps of company bonds. It can also buy protection on credit-default swaps, ABN Amro said. (Added Apr. 23).

NATEXIS ASSET MANAGEMENT, a unit of French bank Natixis, is planning a CPDO based on investment-grade companies, according to a person familiar with the deal. The deal, called MaCROS will be linked to a bespoke portfolio of credit-default swaps on companies and will sell bonds rated Aaa and Aa2 by Moody's Investors Service. Deutsche Bank AG is arranging the transaction. (Added March 29).