CDO Market Explodes In Cayman

by Amanda Banks, Tax-News.com, London

28 February 2006

Offshore law firm Walkers says that collateralized debt obligations (CDOs) are being created at a record pace in the Cayman Islands, with $125 bn of transactions in 2005.

Walkers says that more than 270 CDO transactions were established in the Cayman Islands in 2005; the number of CDOs issued in the Cayman Islands has grown more than 100 percent in the past two years.

"The first Cayman CDO was issued in 1994, however current stability in the corporate marketplace combined with the lackluster performance of debt and equity markets worldwide is translating into a surge in demand for CDOs of all types," Ian Ashman, a Partner in Walkers' Structured Finance group, said. "This type of vehicle is being used in a wider range of transactions including high volume commercial real estate deals and middle market loans."

A recent report by Moody's Investors Services predicts that the record-breaking 73 percent increase seen in CDO issuance worldwide in 2005 should translate into a strong first quarter in 2006. Walkers has seen increased activity in their CDO work to support this analysis.

One of the drivers for this growth is that CDOs are being used in more ways than ever before: as asset-backed securities, commercial- and residential-backed securities, balance sheet CDOs backed by pools of commercial loans, high-yield bonds, leveraged loans, and repackaged CDOs.

"There weren't a lot of corporate credit roller coasters in 2005, so CDOs performed well, diversified, and became increasingly attractive to investors and bankers," David Egglishaw, Managing Director of Walkers SPV, a licensed trust company wholly-owned by Walkers, said. "And this seems to be just the tip of the iceberg. The markets are much more transparent and liquid and we expect to see CDOs applied in increasingly innovative ways in 2006."

The Cayman Islands provide CDOs with a tax neutral jurisdiction, a sophisticated financial infrastructure that includes major banks and accounting firms, and therefore the ability to achieve measurable savings which, in turn, are passed along to investors.

Based in the Cayman Islands with offices in the British Virgin Islands, Dubai, Hong Kong, and London, Walkers offers services across the legal spectrum. Named by HedgeWorld Limited as the top law firm for hedge funds by total assets of funds and assets of non-U.S. funds, Walkers acts for a wide range of clients including major financial institutions, investment banks, leading law and accounting firms, major corporations of all kinds, partnerships, trust companies and other fiduciaries representing almost every country in the world.

Walkers SPV Limited is a licensed trust company and mutual fund administrator, wholly-owned by Walkers, with a branch office in Tokyo. It provides experienced and expert management and administration of Special Purpose Vehicles (SPVs), Directorship and Trustee services to Cayman domiciled investment funds as well as registered office and secretarial services for many companies and partnerships of all types.

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