Despite Argentina's recent plight, including a sovereign default and currency devaluation, several CDOs backed by emerging market sovereign and corporate debt are underfoot.

But don't expect the flood gates to open: "Maybe we'll see six to ten EM CDOs in 2002," said Alex Reyfman, the global head of CDO research at Goldman Sachs. "The investor and issuer base for these deals is currently too small to warrant a major flow of such transactions."

Barep Asset Management, a France-based asset manager and part of the SG Group, is lining up a $200 million area, 100% sovereign backed, arbitrage cashflow emerging market CDO for March. The London-based arm of JPMorgan is arranging the trade and Ambac is wrapping the triple-As. The senior tranche's underlying sovereign pool has a double-A shadow rating, the same as the Trust Company of the West's recent GEM VII emerging market CDO.

Also in pipeline is a sovereign managed synthetic arbitrage CDO for an undisclosed asset manager that Morgan Stanley is understood to be bringing. MS also has a mandate for TCW GEM LIGOS CDO, is currently marketing equity. TCW GEM LIGOS I was backed primarily by a pool of investment grade EM credits.

Ashore Investment Management reportedly has an EM sovereign synthetic CDO in the pipeline as well for sometime in 2002. HarbourView Asset Management is also said to be mulling its first EM CDO sometime this year.

Meanwhile, the TCW's $300 GEM VII is reportedly nearly sold out at 55 basis points area over six-month Libor on the triple-As, investors were told. Like Barep's deal, GEM VII's seniors are wrapped by Ambac. One senior note investor complemented the deal as a good diversifier for his portfolio, but wouldn't participate unless the wrap was in place. Earlier this month IFR Markets was told the double-Bs were two times over sold at the 850 basis point area over Treasurys (benchmark unconfirmed).

GEM VII target portfolio is for 66.6% sovereign debt, 24.5% EM corporates, 4% ABS, and 5% HY bonds; 0.0% Argentina.

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