Energized by high demand and synthetic technology - from LCDS to CDO CDS to the ever-popular ABCDS - there was no shortage of notable deals within the U.S. CDO sector in 2006.
A deal that picked up a lot of steam in the latter part of 2006 was the first constant portfolio debt obligation (CPDO) structure, brought to market by ABN Amro. Called Surf, the CDO spin on CPPI helped to revise some of the rating and valuation challenges posed by the constantly changing nature of CPPI (constant proportion portfolio insurance). The majority of deals brought to market last year involved investment grade corporate indices as the underlying asset, although there was talk about a CPDO referencing the ABX.HE index.
Tuning into investors' hunger for both diversification and yield, Barclays Capital in June brought to market the first-ever managed, publicly rated CDO backed by commodity trigger swaps. The deal, called Everest I, was managed by Trust Company of the West. The deal priced about 100 basis points wide to most new-issue CDOs at the time. Being the first managed deal of its kind, it was toted to have the ability to exploit price fluctuations within the commodities market.
Achieving a feat the market had yet to crack, Cohen Municipal Capital Management managed the first tax-exempt CDO. The deal, arranged as a structured tax-exempt passthrough, was backed by a portfolio of not-for-profit and other types of tax exempt middle-market corporations.
And last but not least, exemplifying a string of deals in 2006 that seemed to be increasingly equity friendly, depending on one's view of the market, Merrill brought to market the first hybrid CDO backed by mezzanine ABS collateral that came without triggers, the Libertas Preferred Funding 1 managed by Strategos Capital Management.
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