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Battle lines drawn in European CDO market

The European market for collateralized debt obligations is set to grow significantly this year. This promises to be an area of intense interest for US and UK structured finance lawyers.


In March, three high-profile capital markets partners left Weil, Gotshal&Manges' London office to join Ashurst Morris Crisp. One of them, Erica Handling, has a strong reputation for expertise in collateralized debt obligations (CDOs), acting for Morgan Stanley, Merrill Lynch, Deutsche Bank and Nomura, among other clients.

This development underlines the escalating competition between the London offices of the big US securitization law firms and their UK peers. Structured finance in Europe - and in Asia - may have some way yet to go before it begins to rival the enormous US market, but euro-denominated and/or European-based deals are on the increase and the deal pipeline is, by all accounts, well stocked, especially with CDO transactions.

CDOs, in their purest form, are vehicles that invest in high-yield bonds and loans with low credit ratings, spreading the risk of potentially low-performing individual investments across a highly-diversified portfolio. This enables the CDOs to issue highly rated bonds, to be repaid by their investments.

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