March 2007
Structured finance: JPMorgan, Lehman at vanguard of CPDOs
Investors say that Cairn – an asset manager set up by former JPMorgan banker Tim Frost – believes that it can add value by managing the roll, and by not being fully levered at launch. The early versions of CPDOs start with 15 times leverage. The concern of some is that when the credit market deteriorates there could be substantial mark-to-market downside. These deals should perform fine in a mean-reverting scenario but might not otherwise.
Also there has been concern that static CPDOs could be subject to a lot of volatility going through the index roll. JPMorgan has altered leverage ratios – the structure’s leverage is capped at 12 – and the speed at which...
