CDOs with equity puts emerge in Asia

New Angles

JP Morgan Chase has begun marketing synthetic collateralised debt obligations (CDOs) with embedded equity put options to a small number of investors in Asia-Pacific. The structure is aimed at sidestepping the sometimes-thorny issue of determining whether a credit event has occurred, as well as bolstering returns for investors.

“One of the problems with [synthetic CDOs] is whether there has been an event of default and what the recovery rate is going to be,” says Bart Broadman, Japan chairman