Sumitomo closes Japan’s first CDO backed by structured finance transactions

Tokyo-based Sumitomo Trust and Banking (STB) has closed Japan's first synthetic collateralised debt obligation (CDO) referenced to a semi-managed portfolio of structured finance transactions. The deal was worth ¥70 billion ($591 million).

STB will manage the portfolio, which consists of Japanese, US and European asset-backed securities, CDOs, residential mortgage-backed securities and commercial mortgage-backed securities bought by the bank, said Jiro Sekino, senior manager of STB's global credit and investment management department.

As part of the deal, a special-purpose vehicle called Dawning Global Asset I, will issue four tranches of note: a ¥52.2 billion super-senior tranche of guarantee agreement obligations, rated (P) AAA; a ¥11.9 billion tranche of asset-backed commercial paper, rated (P) prime –1; a ¥4.9 billion mezzanine tranche, rated A3; and a ¥700 million tranche of subordinated debt that was not rated. The notes were rated by Moody's Investor Services and will mature in 2006.

All senior tranches of the deal have been placed privately among Japanese institutional investors, but Sekino declined to say whether the subordinated debt tranche was kept by the bank or placed with investors.

He said the bank had no plans to issue more such deals, but it might do so if demand from Japanese investors for ABS-type transactions remains high. “The main purpose of the deal is to distribute investment items to Japanese clients that have quite good relationships with Sumitomo Trust in Japan,” he said.

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