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Cash CDOs back on fire


Wait long enough and anything comes back into fashion. Even flares. Now it's high-yield cash collateralized bonds, or CDOs.

No-one launches deals like that any more ? they weren't all bad, but some investors got burnt buying black-box structures loaded with too few names and too much exposure to such credits as WorldCom.

But the old ones still exist, and they're selling fast in the secondary market, although the buyers aren't the same as they used to be. ?Traditional buy-and-hold investors have been joined by hedge fund-style accounts looking for value,? says Will Roberts, head of structured credit trading at Goldman Sachs. ?They're credit-oriented buyers using their own models to identify value rather than relying on where the tranches are rated. There are double-B tranches trading at 250 basis points over Libor and triple-Bs at 500bp over.?

Transparency is what has made them so attractive, as well as price dislocations. Two years ago Goldman Sachs decided to make public all information about all the CDOs it had ever structured, striking a deal with Intex, known for its information on mortgage-backed securities. Most other CDO structurers followed suit.

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