CDO volumes to increase to record levels in 2007, SIFMA survey says

By Jennifer Chiou

New York, Jan. 12 - Despite the projected dip in overall issuance, the market for collateralized debt obligations in the United States is expected to have a record year in 2007, according to an annual survey by the Securities Industry and Financial Markets Association (SIFMA).

The SIFMA survey median response predicts that CDO issuance will be $369 billion in 2007, 12.1% higher than the previous record of $330 billion in 2006.

The projected growth in 2007 will remain broad based and easily digested in the market due to demand from institutional investors, including new investors and hedge funds, the survey noted.

Issuance of collateralized loan obligations is likely to be the leading sector within the CDO market, SIFMA said, adding that the median survey response expects CLO issuance to reach $109 billion in 2007 as the sector continues to benefit from factors such as cyclically low default rates, strong corporate cash flow and strong balance sheet trends.

The survey also said that CDO issuance continues to grow as new and more efficient structures are developed and spreads relative to more commoditized structure and securitized asset classes attract investors.

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