The First European CDO of High Grade ABS Using Correlation Trading Technology to Construct a "Pure" Synthetic CDO of ABS

Wharton is pleased to announce ‘Delta CDO PLC Series 2005-1’, a $2.2 billion CDO (collateralized debt obligation) of high-grade asset backed securities (ABS) managed by Wharton Asset Management.

The indicative capital structure of the deal is:

Tranche Ratings Size Average Life
Class A Not Offered $2,101m 8 yrs
Class B Aaa/AAA/AAA $39.0m 8 yrs
Class C Aa2/AA/AA+ $31.0m 8 yrs
Class D A1/A/A+ $13.7m 8 yrs
Equity Not Offered $27.5m

Pricing date: 20/4/2005


Delta is structured as a synthetic CDO that gives investors exposure to pure ABS credit risk and removes a range of other risks found in comparable cash structures (e.g. available cap risk, FX risk, funding risk etc). This highly innovative and cost efficient structure enables investors to gain exposure to a higher quality ABS portfolio than it would have been possible in a standard cash deal given the current market conditions.

Deutsche Bank will purchase the underlying portfolio from Wharton Asset Management on the closing date. In parallel, Deutsche will acquire protection on the mezzanine risk embedded in the USD 2.2 billion reference portfolio by entering in a series of portfolio credit swaps with the issuer, Delta CDO plc, a bankruptcy-remote Irish SPV. The issuer will then transfer this credit risk to investors by issuing three classes of rated Credit Linked Notes under the Delta CDO 2005-1 transaction.

Another innovative aspect of this transaction is that Wharton will have the flexibility to trade both in the cash ABS and CDS of ABS markets and take advantage of the future developments in the emerging CDS of ABS market.

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