The deal was placed privately with few details available on tranching and pricing, although the structure did include a $10-15 million BBB-rated tranche priced at around 200-250 basis points. Goldman Sachs underwrote the equity tranche, with the remaining tranches placed with investors.
Synthetic CDOs have typically been structured with around 5-10% Asian content; a function of the low diversity among Asian names, a lack of liquidity in the Asian credit default swaps (CDS) market, and a perceived higher risk of Asian credits among global investors. However, the number of liquid Asian names quoted in the CDS market has risen over the last year, while investors in both Asia and Europe have been keen to increase their exposure to Asia amid strong economic growth across the region.
“There is investor demand for high Asian content CDOs in the market because investors – Asian and European – are looking to Asia quite aggressively,” says Lye Thiam Wooi, head of structured assets at Straits Lion Asset Management in Singapore. “Given the tightness of supply in the fixed income markets, there is good demand for an Asian CDO, with the other 35% outside of Asia giving good diversification.”
The manager has to follow a number of guidelines on minimum subordination levels, average rating (which must be maintained at BBB), while the number of trades is capped at 10 per year. It’s the first time Straits Lion has managed a synthetic CDO, although it was named as back-up manager to the Artemus Strategic Asian Credit Fund, a hybrid CDO refernced to a portfolio of CDS and asset-backed securities launched by HVB Asset Management Asia last year.
The firm has a couple of other deals in the pipeline, and will be involved in managing another synthetic CDO, this time with a lower Asian content, in conjunction with a US asset manager. “We haven’t got experience managing global credits, so we have another manager with us,” says Lye.