Credit Suisse First Boston is prepping a $307.5 million CDO for Trapeza Capital Management, backed primarily by trust preferred securities and other debt issued by community banks and thrifts. The portfolio is expected to have an average credit quality of Baa2'/'Baa3' (WARF 490). The deal pool is completely static.

Trapeza is a joint venture between, Trapeza Capital and Sun Trust Robinson - two firms that professionally manage funds and investment companies in the bank/thrift sector. A large portion of Trapeza's managed funds are invested in Trups.

The $179 million triple-A class will have 40.3% subordination, as compared to the typical 13.5% subordination seen in investment grade CDOs and the typical 26.5% subordination in ABS CDOs. Consequently, the senior notes should be able to withstand annual default rates of 11.3% before experiencing a break in yield, market sources said.

This compares quite favorably to the sector's historical annual default rate of approximately 0.4% from 1984 to 2001. While defaults are low so are the recoveries on Trups are approximately 10%.

Despite a November 2032 legal final, CSFB has structured the following average lives: 7.0-year triple-A, 9.6-year double-A, 10.0-year single-A, and 7.5-year triple-B (using a turbo structure). Neither the issuers nor the underwriter could be reached for comment.

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