THE JAZZ III hybrid CDO, managed by Axa Investment Managers and lead arranged by Merrill Lynch in July 2006, was arguably the highlight public market structured credit trade of the past 12 months. Launched amid a bout of investor nerves over the potential for widening credit spreads and rising volatility, the deal enables the manager to go short up to 10% of the total value of $3 billion, and to invest across a range of bonds, loans, credit default swaps, asset swaps and total return swaps referencing 140-odd names. It includes a liquidity facility of almost half the deal value to let the manager leverage up and permits short-term arbitrage trading between cash and derivatives as well as longer-term directional credit investing.
It’s the exemplar for a new range of highly flexible CDO structures.
One unusual aspect of the deal that the CDO market anoraks could perhaps be...
