SEC probes second synthetic ABS CDO, says FT

The Financial Times reports that the SEC has started investigating another CDO sold by Goldman Sachs. It says that the agency has been gathering information on the $2 billion CDO of ABS, Hudson Mezzanine Funding, citing unnamed sources. The FT describes the CDO, which was backed mainly by mezzanine RMBS, as a balance sheet CDO, but contradicts this by adding that Goldman was short the portfolio.

A comment on the FT Alphaville blog quotes the pitch book for the deal, which makes a point of the fact that the CDO is not a balance sheet CDO. According to Creditflux data, the deal, which was managed by Goldman Sachs Asset Management, closed in December 2006 and hit an event of default in July 2008.

Unlike the Abacus 2007-AC1 deal, Hudson Mezzanine Funding I, and the Hudson Mezzanine Funding 2006-2 deal that closed two months later, were broadly distributed CDOs with a full capital structure of liabilities. They were cash CDOs in the sense that each deal comprised its own special purpose vehicle which issued the liabilities. In the Abacus transactions, by contrast, the CDO was created from a vehicle used for numerous different transactions, and the portfolio was most likely referenced through a single credit default swap.