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Barclays pioneers a commodity vehicle

Deal: Apollo CCO

Structurer: Barclays Capital

Date Announced: December 7 2004

Barclays Capital issued the first collateralized commodity obligation (CCO) last month, providing fixed-income investors with access to commodities as an asset class. Historically, collateralized debt obligations (CDO) have used bonds, loans or credit default swaps as the underlying asset. This variant uses derivatives technology to create a debt-style pay-off for a different asset class, giving investors exposure to a basket of commodities in an established fixed-income format.

The commodities in the CCO, named Apollo, comprise energy, base metals and precious metals, including gold, silver, aluminium, copper, as well as Brent, heating oil and natural gas. The vehicle will have a similar template to traditional collateralized synthetic obligations (CSO), with tranches ranging from equity to Triple A and super senior. However, the underlying derivative assets are commodity trigger swaps (CTS). Their ?trigger events? will be determined by a change in commodity price levels, making payment of the principal of the CCO subject to any price movements of the underlying commodities included in the basket.

There are 10 trigger swaps per commodity, with triggers ranging from 65% of the commodity spot price at transaction closure down to 20%, with a 5% separation between trigger prices.

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