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GIA synthetic CDO in the works

Global Investment Advisors (GIA) will launch this month a $1 billion (notional) synthetic, managed investment-grade CDO called GIA CSDO, backed by about 100 corporate names, sources familiar with the transaction said. This is one of a handful of investment-grade CDOs that were delayed following 9/11, which have now become first-quarter business.

Lead manager Bear Stearns has most of the deal soft-circled, sources note.

It is unlikely that the GIA CSDO will be restructured allay recent investor concerns regarding fallen angels, e.g. Enron, sources added. Nevertheless, the recently priced Deerfield Capital's Port Royal synthetic managed IG CDO saw its triple-B tranche eliminated prior to pricing in December, as well as the increase in size of its equity to 3% from 2%.

GIA's deal is structured similarly to the recently priced Sutter synthetic managed IG CDO from Wells Fargo, also via Bear. Both Sutter and GIA CSDO will have about 1.6% in equity upon closing.

GIA is expected to tweak the senior classes of the offering such that cash to the mezzanine and equity will be trapped, should O/C triggers breach at the double-B and triple-B level. This has become a fairly common structural enhancement over the last year, benefiting the senior note holders.

GIA has reportedly combed through the 100 corporate names that it plans to ramp the portfolio with for any sign of stress and has removed any such credits. The initial weighted average rating factor (WARF) is expected to be 220-230, with a WARF rating test at about 280. The initial diversity score is expected in the high 50s.

MBIA will act as the super senior credit default swap counterparty. Meanwhile, the pricing on the debt tranches of CSDO will more than likely move wider, in line with the current market levels seen in the Wells Fargo Sutter and Deerfield Port Royal transactions.

GIA is wholly owned by Reich & Tang, a subsidiary of CDC IXIS, which is ultimately owned by French mutual savings bank Caisse des Depots et Consignations.

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