Sidley Austin Brown & Wood Acts
for DZ BANK on €1 billion CSO;
First CSO Transaction to be Listed on the Frankfurt Stock Exchange.
LONDON – (4 December 2002) International law
firm Sidley Austin Brown & Wood (partner Elizabeth Uwaifo as
assisted by Paul Matthews, Cynthia Cheung, Lia Ryan and Simon Boot)
has recently advised DZ BANK AG Deutsche Zentral-Genossenschaftsbank,
Frankfurt am Main (DZ BANK) as arranger and lead manager on a €1
billion Dynamic Collateralised Synthetic Obligation (CSO) transaction,
the first CSO to be listed on the Frankfurt Stock Exchange and first
public offering of its kind in Germany. DZ BANK is the central bank
of Germany’s network of co-operative banks.
Credit protection on a €1 billion portfolio of credit default
swaps was purchased by DZ BANK from DYNASO 2002-1 Limited, a Jersey
special purpose vehicle (DYNASO).
The DYNASO portfolio is “dynamic” and as such is distinct
from the more common “static” or “managed”
portfolios of other synthetic collateralised swap obligation transactions.
It is “dynamic” in permitting defensive substitution
of a value up to ten percent (per annum) of the notional amount
of the portfolio in accordance with restrictive substitution criteria.
The transaction was partly funded by the issue of 5 classes of Notes
by DYNASO and, to the extent unfunded, was hedged by a credit default
swap with a senior swap counterparty. The Notes were structured
in order to qualify for investment by the network of German co-operative
banks which have strict investment criteria subject to credit committee
and independent auditor approval.
As usual for a transaction of this kind, the notional
amount of the Notes are written down as losses occur on the portfolio.
However, the transaction is unique in retaining the excess spread
within the structure to specifically collateralise repayment of
the initial principal balance of the Class E Notes. The Class E
Notes received Aaa/AAA rating despite being subordinated in the
priority of payments to the lower rated Class B Notes and Class
C Notes.
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