CDOs are on track to see a decline in issuance for the first time in six years. However, one small deal managed to get done. The proceeds of the deal will be used to build an interactive park in Puerto Rico aimed at teaching kids the benefits of recycling.

A $25 million CDO was completed Feb. 26. The selling agent on the deal was Oriental Financial Services, which used collateral from a CDO that Lehman Brothers underwrote. The underlying collateral includes a AAA'-rated $20.8 million note from Greystone CDO. The interest rate payable is 6.9% and matures in March 2023. The other collateral was a $4.2 million Fannie Mae strip, also AAA'- rated, that matures in Jan. 2023. The issuer was Punto Verde Grantor Trust.

A Lehman Brothers spokeswoman declined to comment.

On the closing date, the issuer used the proceeds from the note primarily to purchase the underlying collateral, pay the cost of issuance, and fund Punto Verde Inc. P.T.'s continued construction of an interactive children's park, according to Standard & Poor's.

Punto Verde, which means Green Point in English, is a Puerto Rico-based group that is dedicated to improving the economy of San Juan by helping the growth of small businesses. Its latest endeavor is to build Punto Verde Park to endorse local businesses, while educating children about the benefits of eco-friendly behavior, such as recycling.

However, CDOs are complex structures and financing projects in this manner could be the more complicated route. "It seems a lengthy process to go through for financing, unless they were unable to get a loan, and didn't have an alternative," says a market observer, unfamiliar with the deal.

The CDO is small, and deals of its size are not that common. In the past 12 months, 49 CDOs under $25 million have been completed totaling $727.7 million compared to 404 CDOs over $25 million worth $229.4 billion, according to Thomson Financial.

"Smaller, simple structures are not going to be uncommon as a percentage of issuance this year," says Brian Yelvington, senior macro strategist analyst at CreditSights. However, he says of this deal, its "an example of a very bespoke esoteric deal." The transaction required very specific finance needs.

However, in the past, CDOs have been used in some creative ways. There have been a bunch of middle market deals done in Spain and Germany that have been used to finance a variety of companies and local projects, a market participant said.

Additionally, microfinance CDOs do get done around the Street. Last year, one large investment bank issued deals that were backed by minuscule loans, around $5,000 in size, which were made to help people in developing countries start and run local businesses. The CDOs issued two tranches, and were supported by microfinance companies who invested in the deals. The securitization technique makes these deals easier to sell to institutional investors as well, the observer said.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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