Lehman sells 'Ruby Finance' synthetic CDO in Japan

Lehman Brothers has sold an arbitrage synthetic collateralised debt obligation (CDO) referenced on a static portfolio of 140 credit default swaps worth a notional amount of $1.68 billion in Japan.

As part of the transaction, special-purpose vehicle Ruby Finance has issued $42 million of five-year secured floating rate credit-linked synthetic portfolio notes rated A1 by Moody’s Investors Service. The notes were issued on Thursday and settled on Friday. Moody’s said in a rating report the notes’ credit rating is based on the quality and diversity of credits in the portfolio, the credit quality of the collateral and the subordination amount of $55.44 million.

Ruby Finance will then use the proceeds of the notes to buy floating rate notes issued by Landesbank Hessen-Thüringen Girozentrale as collateral. Ruby Finance also entered into a credit default swap agreement with Lehman Brothers, where Lehman bought protection on the portfolio of global credits. Under the credit default swaps agreement, Lehman will receive the interest on the collateral and will pay Ruby Finance the equivalent of the credit-linked notes’ interest payment.

The transaction was sold to a Japanese investor-base.