COMPANIES INTERNATIONAL: Fast-growing sector hits unlikely roadblock
By Jenny Wiggins in New York
Financial Times Published: October 1, 2003

One of the fastest growing sectors of the debt markets has struck an unlikely roadblock this year as arrangers of collateralised debt obligations run out of eligible securities.

This has led to a sharp fall in CDO issuance - which groups together assets such as junk bonds and leveraged loans - in the US, down 26 per cent to $28.6bn in the first three quarters, according to Thomson Financial.

As corporate creditworthiness has improved this year, the value of some corporate bonds and loans has risen sharply.

This means there is less potential for the securities to increase further in value, limiting their appeal as a high-returning investment.

"When credit spreads are narrow, you tend to see less issuance," said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm.

However, CDO arrangers expect issuance to pick up when companies become more comfortable about the economic outlook and start issuing more debt, and underwriters of CDOs are said to be more open about providing deal information to lure investors back into the market.

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Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008).

Janet Tavakoli's book on the global financial meltdown is Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Wiley 2009).

Clients of Tavakoli Structured Finance have the benefit of proprietary consultation, which is not available in any other paid or public forum. Clients also commission proprietary research and analysis.

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