Lehman Brothers International Europe, the European arm of US investment bank Lehman Brothers, has launched an arbitrage synthetic collateralised debt obligation (CDO) referenced to a $1 billion portfolio of 120 entities that will be managed by the Agricultural Bank of China.The portfolio has a total weighted average credit quality of Baa1/Baa2, rated by Moody’s Investors Service. Each reference obligation has a reference entity notional amount of approximately $8.33 million diversified across 31 different industries including banking (7.5%), telecommunications (7.5%), insurance (7.5%), buildings and real estate (6.7%), retail stores (6.7%) and utilities (6.7%), respectively. In terms of geographical distribution, the underlying reference entities as of the closing date were predominately US (67%) and European (22%) entities, with the remaining 11% in Asia and Australia.
The deal will use two special-purpose vehicles, Golden Jade CDO Ltd and Golden Jade CDO LLC, that will act as co-issuers to three classes of rated notes as well as some unrated notes. The rated notes consist of a $20 million Class A floating-rate notes rated Aaa; $10 million Class B floating-rate notes rated Aa1 by Moody’s; and $27.5 million Class C floating-rate notes rated A3. All notes will mature in 2006 and were placed globally.
Proceeds from the notes will be invested with FGIC Capital Market Services, a New York-based monoline insurance company. At the same time the co-issuers will enter into a credit default swap (CDS) on the reference portfolio with Lehman Brothers Special Financing. Under the CDS, the issuers will provide credit protection to Lehman Brothers Special Financing, which in return will pay the premiums on the CDS to the issuers until the scheduled final payment date in May 2006.
More on Structured Products
Move follows series of structured products hires at Canadian banks
The pros and cons of obtaining diversification through multiple counterparties
Potential for early kick-out on Russell 2000 and iShares Emerging Markets ETF
Six-year product exploits low correlation between sectors
Sign up for Risk.net email alerts
Nominated for two technology awards
Nominated for post trade technology award
Sponsored webinar: Collateral and counterparty tracking
Isda directors warn on fragmentation, access and liquidity - but expect problems to pass
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.