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The rush returns to ABS

From an asset class perspective, the CDO sector dominates the pipeline and within that sector CLO issuance is at the vanguard.

The last months of 2004 were notable for the lack of a traditional end-of-year rush to print structured finance trades. But this year the rush is back, with ABS syndicate bankers expected to work right up to the Christmas break to complete the backlog of deals.

To some extent, CLOs have been overshadowed this year by continued product innovation in the synthetic CDO space, with the introduction of various structures such as leveraged super seniors and credit principal protected notes.

“The CDO space is highly innovative in the way it adapts to market trends and investor appetite,” says Ganesh Rajendra, head of European securitization research at Deutsche Bank.

The flexibility of synthetic structures is one of its key strengths, allowing arrangers to build in greater yield or risk as the buy-side desires. However, these bespoke deals account for only a paltry 11% of European CDO issuance: managed cash CDOs are responsible for just under 40%; while half of CDO supply is of the traditional cash bank balance sheet kind. The appearance in November by Barclays (Gracechurch Corp Loans) and HSBC (Metrix Funding) with two massive notable balance sheet CLOs, sized at £5 billion and £2 billion respectively, was merely a coincidence rather than signifying a trend.

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