Three years ago when the first ‘credit CPPI’ deals appeared, the product seemed a marginal part of the structured credit world. These transactions borrowed a technique that is commonly used to transform equity and fund investments into principal-protected products suitable for retail investors – particularly private bank clients. And until recently most credit CPPI deals have targeted the same investor base.

The appearance of CPDO deals, from late 2006, extended the concept of defined leverage formulas to a new class of investors – those who had previously bought only synthetic CDOs and other coupon-paying investments.

As the discussion on the following pages shows, the use of CPPI and related technology is one of the most exciting and controversial topics in structured credit today. And there are few issues today that provoke as much investor confusion and uncertainty.

The market is certainly growing quickly. Creditflux compiles data on the combined market for CPPI and CPDO products and finds that in 2006, CPPI deals predominated and that most of these transactions employed a third-party asset manager. However, the fact that CPDOs appear only in the latter half of 2006 suggests that if last year’s trends continue, 2007 may see CPDOs overtake CPPI transactions in terms of both volume and value.