Bangkok--Jan 10--Moody's
Moody's Investors Service says that both privately placed as well as publicly rated single-tranche synthetic collateralized debt obligation (CDO) transactions primarily referencing US and European corporate entities along with Taiwanese CBO dominated the Asian CDO market in 2005.
For 2006, Moody's expects continued issuance of bespoke synthetic CDOs,
potentially more synthetic resecuritizations, but it remains to be seen whether leveraged super senior transactions will gain popularity as this will be mainly dependent on spreads.
Moody's conclusions were contained in its just-released review of the
Asian market for CDO in 2005 and the outlook for 2006. The report which deals with the market exclusive of Japan and Australia was authored by Myrna Fajardo, a Vice President and Senior Credit Officer, and Elaine Ng, an Analyst. Both are located in Moody's Hong Kong office.
"During 2004, some of the more innovative structures that were rated included synthetic transactions with long as well as short positions, forward starting CDOs, and increased emerging market exposures," Fajardo says.
"In view of increased regulatory pressure in Taiwan regarding off-loading
inverse-floater and range-accrual bonds held by bond funds, arrangers came up with creative ideas to repackage these securities," Fajardo says, adding that three deals were rated by Moody's and several are in the pipeline and scheduled to close in the first half of 2006.
Last year, investors were also interested in investing in traditional cash flow CDO transactions, which were structured and rated out of the US and Europe.
Most investors in single tranche synthetics in 2005 were commercial banks and insurance companies located in Singapore, Taiwan and Hong Kong with US dollars being the currency of choice. Greater activity also occurred in Taiwanese CBOs with Moody's rating three transactions.
Returning to the outlook for 2006, the report says that the ratings on
most tranches will remain under pressure as the expectation is of continued credit deterioration in the corporate sector. Indeed, during 2005, such deterioration had already led to increased pressure on the ratings of some tranches as well as some downgrades.
"With the anticipation of further pressure on corporate credits, it is
expected that the single tranche CDOs will suffer further deterioration in their ratings before stabilizing," the report says.
The report also says that during the first half of 2006 more issuance of
CBOs will occur out of Taiwan, but as bond funds repackage their inventories of structured bonds and off-load this risk, such issuance will diminish by the second half of 2006.
This year, investor appetite will remain strong for single tranche
synthetic transactions referencing corporate credits, the report says.
At the same time, the securitization of small to medium enterprise loans
through either cash or synthetic CLO structures originated out of China, Taiwan, Singapore or Korea -- could occur.
The report is entitled "2005 Review and 2006 Outlook Asian Collateralized
Debt Obligations: Synthetic Arbitrate and Taiwan CBOs Dominate the Market." It can be accessed at www.moodys.com
Hong Kong
Min Ye
Managing Director
Structured Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Hong Kong
Myrna Fajardo
VP - Senior Credit Officer
Structured Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121 End.