INVESCO has returned to the asset-backed securities market--after a near two-year absence--with its first synthetic deal. The USD9 billion collateralized debt obligation manager had held back because of lack of interest in recent ABS but chose to dive in when the launch of documentation for ABS credit-default swaps gave it greater ability to select reference entities.
The USD500 million CDO, called Furlong Synthetic ABS CDO 2006-1, consists of 100% credit-default swaps on mostly vintage sub-prime residential mortgage-backed securities. The collateral--55% from 2004, 30% from mostly first quarter 2005 and only 15% from 2006--references 63% sub-prime home equity, 32% residential prime and 5% structured finance CDOs. It is so-named for a measure of distance used in horse racing. The asset-management team is based in Louisville, Ky.
The manager’s last deal, Bluegrass 3, closed September 2004 and was all cash. Last year, it changed its mind about a cash deal and liquidated while ramping. “They definitely didn’t like the middle and back end of 2005,” said an official close to the deal. “When the CDS [template] came out, they jumped into that. CDS allowed them to stick to collateral they liked and completely avoid collateral they didn’t like.” He added this was the tightest pricing he has seen this year and possibly ever. “People really like the manager and they like the collateral story,” he said.
Kevin Petrovcik, portfolio manager, was traveling and could not be reached. James Stehli, managing director and global head of the global CDO group at UBS in New York, which arranged the deal, declined comment ahead of its close June 30.