The martini of CDO maturation was shaken and stirred last week when Credit Suisse First Boston announced it had undertaken a major transition toward CDO transparency, joining other top-ranked firms that are now disseminating deal structure and collateral information to third-party analytic provider Intex.
CSFB has been the No. 1 underwriter of CDOs for the past several years, and presumably has the most data to disseminate. This development follows a record-setting spike in trading in the secondary market last month, attributed in part to the underwriting community's efforts to provide more transparency on existing deals, or so they would have us believe.
CSFB's CDO team confirmed it had begun to disseminate CDO deal information, something investors have been demanding from all the banks. In the past, underwriters have claimed the right to protect proprietary structural information and other trade secrets.
However, with the advancement of CDO technology in recent years, and with so many participants now on the scene, the dark cloak of secrecy - especially for deals long closed - may be more detrimental than profitable, sources said. Citigroup announced last December it would funnel CDO information to Intex, a third-party analytics provider. Goldman Sachs and Morgan Stanley made similar moves in 2002.
CSFB said last week it now distributes information on CDO transactions arranged by the firm to third-party analytics providers as well as qualified institutional buyers.
"The CDO market has expanded dramatically in recent years. We see a need for greater transparency and the improved liquidity that it will help create," said Jerry DeVito, co-head of leveraged finance structured products at CSFB. Distributing CDO deal information is a move to achieve that goal, he said.
As noted, the announcement comes on the heels of a pickup in secondary CDO market trading, which reportedly reached never-before seen levels in June. While the focus, sources said, was due to the circulation of the so-called "Abbey List" - essentially a CDO repack list offloaded by Abbey National Bank - new CDO deal issuance slowed dramatically as investors turned their attention to the overlooked secondary market. While it may be impossible to say for certain that transparency efforts helped any trades undertaken at the secondary level, it certainly didn't hurt. The action gave credence to claims by numerous CDO researchers that the CDO market had indeed matured, and that CDO deals benefited in the long term from more information available to investors.
"As dealers release more information, we expect investor comfort with CDOs to increase," noted Alan Mentle, co-head of CSFB's leveraged finance structured products.
In all, the firm hopes the move will improve investor acceptance of the CDO asset class, suffering from a rash of rating downgrades over the last two years - namely from fallout from the high yield market.
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