ING shelves Spectra synthetic CDO, mulls Japanese synthetic

ING Barings has cancelled, or as one market source put it, “put on hold indefinitely,” its Spectra arbitrage synthetic collateralised debt obligation (CDO). It would have been the first arbitrage synthetic CDO managed by an Asian portfolio manager, Singapore’s OUB Asset Management.

The bank launched Spectra last November and failed to place all the tranches of the deal, and eventually pulled it, market sources said.

The US$450 million five-year transaction was based on a portfolio of 90 credit default swaps as well as some triple-A cash bonds.

Spectra included a super senior tranche worth US$328.5 million, as well as US$83.25 million of senior floating rate notes rated (P)Aaa by Moody’s Investors Service, US$13.5 million of senior floating rate notes rated (P)Aa3, US$14.625 million of floating rate notes rated (P)Baa3 and US$10.125 million of subordinated notes.

In a written response to RiskNews, ING said that “the combination of the tragedy of September 11 and the corporate accounting scandal that emerged at Enron affected some investor sentiment towards complex CDO structures in general, therefore we decided with the manager to put the deal on the back burner for the time being.”

Meanwhile, ING is turning its focus to the Japanese market, with a synthetic CDO called All Nipon CDO. “They’re still playing around with the structure,” said one source familiar with the transaction.

The current potential structure is expected to have a total size of ¥88 billion, including a super senior tranche worth ¥81 billion and ¥7 billion of cash tranches. The portfolio is expected to be credit default swaps on 88 Japanese names.

The transaction will likely be targeted to Japanese investors, given that it’s only rated by Japanese rating agency RNI, rather than any of the three international rating agencies.

ING declined to comment on the All Nipon deal but noted that “We have a healthy pipeline of structured product transactions this year which we believe are well suited to the current risk appetite of Asian and global investors.”