JP Morgan Chase prepares first syndicated synthetic CDO

The deal, called Overture, will be managed by France’s AXA Investment Managers and will be distributed by at least seven regional bookrunners, in an attempt to maximise client penetration and transparency of CDO transactions, according sources familiar with the deal.

“The idea is really to get a number of top banks with regional focus to distribute a standardised product, which will improve liquidity and transparency in the CDO market and offer a benchmark for future deals,” says one source.

The confirmed bookrunners to date are ABN Amro for the Benelux region, Bayerische Landesbank in Germany, CDC Ixis in France, DBS Bank for Asia ex-Japan, Mizuho in Japan, Standard Chartered in the Middle East and Wachovia in the US. JP Morgan Chase will act as lead manager and global bookrunner. All bookrunners will take on a portion of the underwriting commitments.

The deal, which is expected to price within the next month, will be between $3-4 billion, and will comprise four tranches of rated notes. The AAA tranche will make up around 6% of the deal, the AA tranche will comprise around 3.25%, the A tranche 1.25% and the BBB 1.75%. The equity portion makes up around 3.75%, while the unfunded super senior tranche accounts for 84% of the transaction. The portfolio will comprise of investment grade corporate credits – bonds, loans and credit default swaps – with around 45% originating from the US, 50% from Europe, and 5% from other regions.

AXA Investment Managers will follow the same active trading blueprint they used for their Jazz CDOs launched in 2002. There will be no limit on the number of substitutions they can make per year, although there will be guidelines in place regarding minimum rating, diversity and spread. The French firm will invest in the first loss and BBB tranches.

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