As far as CDOs go, there is a huge variance between traditional cash and synthetic transactions, although both have found keen interest from investors. The rise in single tranche, or customized, synthetic CDOs this year is a testament to the continuous innovation offered, uniquely, by this market.
Standard & Poor’s recently took note of the spike in synthetic CDO transactions and made moves to publish existing criteria the agency uses when it comes to rating these structures.
“This growth is set to continue given the increased importance of risk management, better guidance from regulators and the increased liquidity of and familiarity with credit derivatives,” said Katrien van Acoleyen, an S&P credit analyst. “A further development is the mixing of cash assets and synthetic assets, as seen in hybrid transactions,” she added.
Given that synthetic CDOs typically reference credits in the credit default swaps market, investors might like to take advantage of the upcoming ISDA North American Regional Member Conference. Held this week in New York City, the conference features a keynote address by the chairman of the new Public Company Accounting Oversight Board, William J. McDonough.
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