UBS's Tyger CPDO notes hit cash-out point

Moody's downgraded the Series 103 notes to C from Ba2 on Friday November 23 after spreads on the financial credit derivatives underlying the debt widened to 170 basis points on November 21, triggering the unwinding of the deal. Investors will face "an approximate loss of 90%", the agency said.

The news affects €11.5 million of notes; another €41 million was bought back and cancelled before the cash-out. Four more series of notes have been placed on watch for downgrades as spreads continue to widen: two Baa2-rated Tyger notes, two A2-rated notes in ABN Amro's Surf CPDO, and a UBS CPDO credit default swap (CDS).

UBS was forced to restructure several tranches of the Tyger CPDO last month, but nobody expected the restructuring would be followed by a cash-out. The benchmark iTraxx Europe five-year index has risen dramatically, with spreads going from a low of 268.5bp on October 11 to 399.9bp on November 21. Unlike first-generation CPDOs such as Surf, Tyger was based on a bespoke portfolio of financial CDS, not on a credit index such as the iTraxx.

See also: Financials first CPDOs to crumble
CPDO ratings scorned at credit risk summit