* 1bn issue to be backed by asset-backed securities
* Deal expected to achieve lower funding cost for Goldman Sachs
* Complex nature of the trade seen as a deterrent for investors
By Helene Durand and Anil Mayre
LONDON, June 27 (IFR) - In a move some could see as a return to the bad old days of structured credit, Goldman Sachs is hoping to sell a highly complex transaction that blurs the lines between covered bonds and securitisations.
The deal, which could arrive as early as next week, is backed by a portfolio that includes a variety of asset-backed bonds. That may prove controversial as some will feel it resembles the kind of CDO transaction blamed by many for contributing to the 2008 financial crisis.
The US bank began a roadshow this week for the so-called Fixed Income Global Structured Collateral Obligation (FIGSCO) 2014-01, through Barclays, Credit Agricole, Natixis, UBS and its own investment banking unit. According to S&P, the deal is expected to be a 1bn seven-year trade, from a 10bn programme.
As a pure investment bank, Goldman Sachs does not originate mortgages typically used for covered bonds or RMBS deals. But it does originate other assets that it is looking to fund more cheaply while terming out its debt profile.
However, convincing investors to look through the layers of complexity could prove difficult.
"This is a highly customised transaction with many moving parts, which will be much less liquid than covered bonds covered by a legal framework," said Dierk Brandenburg, a senior bank credit analyst at Fidelity.
"The collateral is of poor quality and one is relying on the support structure that is in turn very complex with multiple support mechanisms."
A fund manager echoed this view, saying he had yet to figure out whether he could actually invest in the bonds and which fund in his portfolio it would fit in.
"There is a sense of deja vu and this looks like some of the deals we saw before the financial crisis, which had the same total return swaps construct, although I may be too harsh and would have to look more closely at the structure," the fund manager said.
Some say that the deal, which is in part aimed at covered bond investors, might not work with those buyers.
"We have seen the likes of Commerzbank do these structured SME covered bonds or NIBC use the pass-through structure, but while the transactions got done, we also saw that for many covered bond investors moving away from the strict covered bond legal framework is quite a stretch," a banker said.
The deal will not fit in the covered bond legal framework because the assets would not be eligible for a cover pool as defined by European regulations. The bonds are also unlikely to be repo-eligible at the ECB; nor will they be likely to count in calculating a bank's liquidity coverage ratio.