Daiwa Securities SMBC launches managed synthetic CDO

Tokyo-based Daiwa Securities SMBC has launched its first managed synthetic collateralised debt obligation (CDO). The deal is worth ¥5.4 billion and is referenced to a portfolio of 100 Japanese credits.

The transaction, launched yesterday, uses a special purpose vehicle called Zest II that will issue four tranches of notes: ¥1.2 billion of Class A1 fixed-rate notes rated AAA by a Japanese rating agency, R&I; ¥1.2 billion of Class A2 floating rate notes rated AA-; ¥1.2 billion of Class B fixed-rate notes rated A+; ¥600 million of Class C fixed-rate notes rated BBB-; and ¥1.2 billion subordinated portion that was not rated. The notes will be issued as euroyen credit-linked notes and mature on June 21, 2008.

Daiwa Asset Management will be the adviser for the management of the underlying portfolio that was bought from the market, said Nick James, deputy general manager in the derivatives trading division at Daiwa Securities SMBC in Tokyo.

The deal is the second in the Zest series of synthetic CDOs launched by Daiwa Securities SMBC. The first, called Zest, was a ¥6 billion static synthetic CDO that was also backed by a portfolio of Japanese credit default swaps bought from the market and closed in February. James noted that the firm is looking to do a third synthetic CDO called Zest III by September, that will also be backed by a portfolio of Japanese names. Details of the deal have yet to be decided.

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