Savings Product Review: Credit Sails

Tuesday 13th June 2006

What is it called and what sort of savings product is it?
Credit Sails stands for Saleable Index Liked Securities, and is a listed, high-yielding fixed interest investment which invests in collateralised debt obligations (CDOs).

Who is the company behind it?
Sharebrokers Forsyth Barr are pushing it in New Zealand, and the actual company behind it is a special purpose Caymans Island registered company Credit Sails Ltd.

Who is the target market?
This sort of investment appeals to fixed interest investors who are prepared to take some risk.

What return does it offer?
Its interest rate is 8.50%, however the expected total return over the life of the investment is expected to be around 10% annually.

When was it launched?
May 31.

What other products is it like or is it competing with?
Other listed fixed interest investments that invest in collateralised debt obligations such as Macquarie's Fortress Notes.

Is it long term, short term or medium term?
The scheduled maturity date is December 22, 2012, however it could be redeemed earlier.

What is the unique selling point?
From time to time these listed CDO-backed investments come to market in New Zealand. This one has a AA Standard and Poor's rating, however CDO ratings are not identical to credit ratings given to finance companies.

How strong a stomach do you need for it?
Reasonably. These types of investment are secure up to a point, however if the portfolio suffers a certain number of defaults investors can suffer capital losses.

What's the hitch?
There is a line often used about investments that you shouldn't invest in something if you don't understand how it works. Investments which use CDOs look simple at face value, but are extremely complex investments.

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