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Since the beginning of 2001, the diverse nature of the structured finance transactions carried out both in and through Ireland has increased dramatically. Many of these transactions are notable for the cutting edge nature of the structures implemented.

Deutsche Bank has recently completed the first rated real CDO backed by private equity that involved issuing tranched debt. The level of oversubscription for this deal suggests that similar private equity structures may follow in the near future. Deutsche Bank was also involved, along with Merrill Lynch, as lead managers and arrangers to the largest static CDO in Europe on behalf of three Portuguese banks. The structure utilized back-to-back deposits between Portugal, Germany and Ireland and three credit default swaps in order to meet various Portuguese and Irish requirements.

Two unusual aircraft finance securitization-based transactions have also completed. The BAE Systems' $2 billion Mothership deal, which was arranged by Salomon Smith Barney, securitized lease payments from BAE's vendor finance programme. The unique complicated structure allowed BAE to free up credit capacity for use in other parts of its business. The much-discussed Leonardo deal arranged by Merrill Lynch on behalf of Banca Commerciale Italiana was the first synthetic aircraft CLO in the market. The structure implemented permitted BCI to transfer the first loss risk to Merrill Lynch by way of a credit default swap thereby producing regulatory capital benefits for BCI.

The Promise (Programme for Mittelstand) scheme set up by Kreditanstalt für Wiederaufbau was launched last year to securitize loans by German banks to small and medium-sized corporates. The original transactions completed by HypoVereinsbank and IKB Deutsche Industriebank have now been followed up by similarly structured CDOs from Dresdner Bank and DG Bank. Further Promise deals are in the pipeline.

Aside from the above transactions, Ireland has also witnessed a steady stream of traditional receivables securitizations of various asset classes, securitizations of more unusual assets (such as Turkish government debt and commercial intellectual property), an increasing number of debt repackaging structures and off-balance sheet warehousing arrangements, all of which have been implemented on a tax-efficient basis. Given the hectic start to the year, it will be interesting to watch the types of transactions to be structured through Ireland in the final quarter of 2001.

Turlough Galvin

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