Deal insider: Securitizing European high-yield debt
Issuer: EuroCredit CDO 1
Amount: €416.5 million
Type of issue: European high-yield collateralized debt obligation
Date: August 11, 1999
Bookrunner: Morgan Stanley Dean Witter
A sure sign that the European high-yield debt market is expanding and maturing is the appearance of wider and more sophisticated investment products. The increasingly diverse range of new issues and a more reliable and regular flow of deals have opened up the market, and are attracting new investors. To capitalize on this, in August, Morgan Stanley Dean Witter and UK mezzanine finance specialist Intermediate Capital Group (ICG) introduced high-yield collateralized debt obligations (CDOs) to Europe.
High-yield CDOs are a staple of the US debt market, accounting for approximately 20% of all high-yield investments. In the first eight months of this year, $25 billion of US CDOs have been issued. They are special purpose vehicles that invest in a portfolio of assets and are funded through securitization. In this case the portfolio will consist of non-investment grade bonds, loans and mezzanine positions including many from large European MBOs for which ICG arranged and provided mezzanine financing, and ICG will act as investment adviser for the CDO. Several classes of securities are typically issued, carrying differing levels of risk and return.