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Deals that changed the market in 2006: ABN Amro’s Surf constant proportion dynamic obligation

At the end of the summer ABN Amro’s constant proportion dynamic obligation (CPDO) created the biggest sense of excitement in the structured credit sector in well over a year.

Six deals that changed the market in 2006

Name of institution: ABN Amro
Deal type: Surf constant proportion debt obligation
Issued by: ABN Amro
Size: €1.35 billion
Closing date: November 2006

ABN Amro’s constant proportion dynamic obligation deal was somewhat fittingly called Surf as it created a wave of curiosity, controversy and copycat transactions. Dealer and investor interest was naturally piqued by the creation of a credit instrument that offered a triple-A rating on coupon and principal for a 10-year security that offered 200 basis points over Libor. The genesis for the trade came out of ABN’s marketing of constant proportion portfolio insurance (CPPI), and synthetic CDO product. “We constantly listen to what investors require. We had a range of investors who really liked the CPPI technology but who needed a coupon because they are fixed income buyers,” says Steve Lobb, head of structured credit marketing, ABN Amro.

“CPPI is an absolute return product, which by design continues to take maximum leverage to generate maximum returns. What we did with the CPDO is twist that on its head because our investors needed a fixed coupon.

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