In synthetics, S&P said CLOs of leveraged loans would emerge during 2007, as leveraged loan credit default swaps and indexes gained liquidity, backed by growth in the cash market. It expects a small rise in niche sectors such as project finance CLOs, emerging market, and mono-sector CDOs, such as German re-insurer Hannover Re’s recent deal (See: Hannover Re launches insurance CDO).
S&P also believes there will be growth in hybrid CDOs, including constant proportion portfolio insurance and constant proportion debt obligation transactions, which will increasingly be managed.
S&P said that synthetic CDOs of ABSs could become more popular, but outstanding problems, such as liquidity and homogeneity, would need to be cleared up. Synthetic CDOs based on commercial real estate would also prove to be popular, the agency said.