Synthetic structures are moving in the promised direction and reached new grounds with the recent launch of the U.K. synthetic CMBS, Eurohypo 2001-1.

The deal, issued in five tranches of floating-rate notes, is expected to total GBP222 million. The transaction uses a synthetic, direct credit-linked structure in which the five tranches of FRN are issued under a super senior credit default swap. The underlying mortgage loans remain on the originator's balance sheet and transfers the risks through both the credit-linked notes and the protection highlighted by the credit default swap.

Eurohypo, the originator on the deal, lists approximately GBP1 billion in total assets, which is composed of 38 mortgage loans secured on 234 commercial U.K. properties.

"It's the first purely U.K. synthetic CMBS," said John Bigley, an analyst at Fitch familiar with the deal. "We are looking at a few other synthetics that are U.K. based and pan-European."

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