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Capital Markets

SF market round-up: CDPC launches: And then there were three

The first of several credit derivative product company (CDPC) launches widely rumoured to be in the works emerged just before the year-end.

Deutsche Bank and AXA Investment Managers have launched a new vehicle – Newlands Financial – which joins the two long-established companies in this sector, Primus Financial Products and Athilon Capital. The new vehicle will write protection at the super-senior level but has buckets for triple-A and double-A risk. As such it competes in the same space as monoline insurance companies, which have established a lucrative business writing protection at this level (see Euro Heloc deal given test run, Euromoney July 2006).

In order to be effective, CDPCs need to have the ability to do capacity trades. Deutsche Bank is putting up $125 million equity for the venture and will also provide the operational infrastructure for the company. AXA will manage the portfolio and will limit its trading with Deutsche Bank to 10% to maintain independence. It is understood that AXA might put up equity in the venture at a later date.

The fact that just one company has emerged in 2006 indicates how complex and time consuming setting up a CDPC is. Next in the queue could be Pallium Investment Management, which is being backed by Bank of Montreal.

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