The five-year, e237 million Thunderbird Series Three CDO is backed by 36 ABS tranches and three synthetic mezzanine CDO tranches. This reference portfolio is worth over e7.7 billion.
In the deal, Thunderbird Investments sells credit protection on the reference portfolio. To collateralize its obligations under the sale, it issues secured floating-rate and variable-rate notes in Australian dollars, euros, yen, US dollars and Swiss francs. The proceeds are invested in AAA rated ABS and AA- rated government bonds under a repurchase agreement with BNP Paribas. Forex swaps keep the collateral denominated in euro.
Thunderbird Three breaks new ground in synthetic CDOs of ABS. It is the first CDO of ABS rated by Standard & Poor's where, under the credit default swap, the issuer provides for a fixed level of recoveries if the reference obligations are affected by credit events.
"Because recovery is fixed, the impact of a certain set of credit events is known in advance," says Antoine Chausson, head of credit derivatives structuring at BNP Paribas. "That caters to investors who want a simpler structure."
And with a fixed recovery structure, there's no need for time-consuming valuation after a credit event.