Deutsche Bank has arranged a $2 billion synthetic CDO of CDOs for Taiwanese insurer Shin Kong Life. It is the bank's first CDO-squared deal in Taiwan, the first managed CDO that Shin Kong has bought and one of the country's biggest CDO deals to date.
Taiwanese insurers are becomingly increasingly adventurous with CDO products since they won the go-ahead to invest in them in the middle of 2004. This latest deal for Shin Kong includes a pool of 40 asset-backed securities, in addition to the 250 corporate names included in the CDO pool. The split is 80% CDOs to 20% ABS.
As the deal is a private transaction between Deutsche and Shin Kong details on the pricing are not available. However, the motivation for these types of deals is typically yield - a CDO of CDOs can yield up to 100bp or more over a plain-vanilla CDO. That makes them highly attractive to sophisticated clients. "With credit spreads so tight you need to go up the leverage ladder to hit your targeted returns," says one CDO banker.
The SKL CDO Series I is issued through a special purpose vehicle in London. The structure allows Shin Kong to switch the corporate names for its own managed CDO transaction. "This transaction shows the level of sophistication that Taiwanese investors have with respect to credit derivatives," says Vinod Aachi, managing director of the Asian relative value group at Deutsche Bank.
