CIBC is prepping what is believed to be the first visible CLO backed primarily by Canadian corporate credits.

The $1 billion synthetic balance-sheet CLO, structured and placed by CIBC, is a mostly static deal, though CIBC is allowed to dynamically substitute names from time to time to include obligors for whom the bank has already reached its maximum credit exposure. These will replace names of obligors with equivalent credit standing for whom the bank bears less exposure.

The transaction will have an 85%-90% super senior-tranched basket credit default swap and about 10%-15% of cash notes providing subordination.

"Since Canada's economy is approximately 10% of that of the U.S. there are billions of dollars of loans and bonds that could be put in CDOs," noted Martin Fingerhut, a partner and chair of the securitization practice of Blake, Cassels & Graydon LLP, a Canadian law firm.

Fingerhut added that non-assignment agreements in loan covenants have presented a challenge to the addition of certain loans in Canadian obligor-backed CLO deals. However, synthetic or trust structures can likely get around these concerns.

Canada has seen CDOs structured and placed in their sponsors' ABCP conduits in the past, Fingerhut said.

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