Fortis Recruits Solent For First-Of-A-Kind Managed CDO
This article appears courtesy of Institutional Investor
Source: Derivatives Week
Fortis Bank has structured a synthetic collateralized debt obligation embedded with a novel forward-starting management technique and has brought on board Solent Capital Partners , a London-based hedge fund controlling USD4 billion in investments, to run the transaction. Reported by market officials to be the first CDO to reference fixed-maturity credit-default swap but allow re-investment in forward-starting contracts, it is designed to allow a manager to capitalize on any widening in credit spreads, said Etienne Courtois , structured credit product manager at Fortis in Brussels. "This means they can play the steepness of the credit curve and really exploit price risk," said one European structuring official.
Called Regata, in line with a series of Solent deals with sailing names, the CDO references an underlying portfolio of 150 correlated, investment-grade corporates, split into a A to AAA-bucket of eight-year CDS and BBB-bucket of five-year CDS. The three-year maturity mismatch will be managed by Solent, which will re-invest in forward-starting CDS using an overlapping bucket that is empty on day one. For example, in year two Solent can invest in a three-year CDS which kicks-off in three years time.