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Capital Markets

Credit derivatives: Institutionals dominate revitalized CDPC sector

Babson-managed CDPC takes industry to the mainstream of structured credit.

The launch of two credit derivative product companies (CDPCs) in less than three months indicates that activity in this nascent market is poised finally to accelerate. But the nature of its participants could change fundamentally as the market matures. The early players in the space – Primus Financial Products and Athilon Capital Corp – were standalone entities with private equity backing. But the new breed of CDPC is far more likely to have institutional sponsorship.

Several standalone entities have been linked with CDPC plans: Deerfield Capital Management and Aladdin Capital Management to name but two. But the business model of a CDPC might not be ideally suited to a public market exit; sponsors of CDPCs need to have deep pockets and lots of patience. It is not clear that there is an exit – either public or private – from these vehicles in the short term. Plans for CDPCs by several standalone vehicles are reportedly now on hold, and the two recent launches in the sector have firm institutional backing.

Following on from the Deutsche Bank-backed Newlands Financial in November, Mass Mutual and Babson Capital Management launched Invicta Credit in early January. The vehicle is the first to be wholly owned by a financial institution.

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