European CDO Market To Continue Growing In 2003

The European collateralised debt obligation (CDO) market experienced yet another year of dramatic growth in 2002 with innovation a key feature. Growth is set to continue in 2003, albeit possibly at a slower pace, says Moody’s Investors Service in its 2002 Review & 2003 Outlook report. ‘The total market volume of credit risk transferred reached US$183 billion (EUR182 billion) in 2002 – a 42% growth in volume over 2001,’ says Katherine Frey, author of this report. The overall growth in the market was the result of a strong rise in synthetic CDOs (a 45% increase in the number of rated deals), rather than in cash deals, a segment that hasn’t grown despite some prominent innovations. Approximately 96% of the deal volume and 85% of the number of deals were issued in synthetic form in 2002, making European CDOs essentially a synthetic market. ‘Most notably, managed synthetic transactions took off during the year after arriving on the scene at the very end of 2001 – Moody’s rated 38 synthetics which allow for substitution, including fully managed deals, in 2002,’ Frey noted.

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