ABN AMRO plans to raise the bar for Australia's so-called socially responsible fixed interest rate investment vehicles with its newest CDO issuance set for Friday.
The Rembrandt Australia Trust 2005-1 (Responsibility, Ethics, Environment, First [REEF] series 1) senior secured tranche of five-year double-A minus rated floating rate notes offered to investors are linked to the performance of a A$1.1 billion ($830.1 million) portfolio of investment grade CDOs containing companies considered "at the forefront of social responsibility," according to ABN AMRO. The portfolio of CDOs has a probability of default equivalent to at least triple-B minus.
The deal has a minimum issue size of A$20 million. The notes, maturing June 2010, are set at 110 basis points over three-month BBSW. Perpetual Trustee Co. Ltd will serve as trustee, and ABN AMRO Bank N.V. Australian Branch and ABN AMRO Morgans Ltd will serve as joint lead managers on the deal.
The deal's socially responsible theme is a draw for retail and institutional investors, such as government and charitable organizations bound by certain investment requirements, ABN AMRO stated.
The 300 corporations referenced met corporate social responsibility criteria set by RepuTex Australia Pacific Pty Ltd, a private research and ratings agency specializing in corporate responsibility and reputation. The agency reviewed some 500 corporations worldwide before trimming the list down to 300 acceptable entities rated single-A minus or higher for their commitment to corporate governance, workplace practices, social impact, and environmental impact, ABN AMRO reported. The addition of social responsibility analysis on top of traditional credit ratings aims to identify broader corporate issues that could affect a company's future performance - such as environmental legislation, workplace cultures, labor markets and political exposure, the company wrote.
There is growing demand from most western markets for products that are "as ethically strong as they are profitable," Richard Burrett, managing director at ABN AMRO's sustainable development, said in a May 27, statement. "Sustainability no longer applies to a set of values that shape a company's culture, it is an essential product ingredient demanded by modern markets, regardless of sector," he added.
Reference entities in the REEF portfolio include companies from food and drug retailer Albertson's Inc. to telecommunications giant AT&T Corp. to the MBNA Corp. and insurer MetLife Inc. and McDonald's Corp.
The analysis, according to ABN AMRO, represents a tool for the next generation of risk management.
Companies with primary operations in alcohol, gambling, tobacco and weapons manufacturing were excluded from the deal, regardless of credit strength or arbitrage opportunity. Of the referenced entities, 83% were rated in a range of single-A to triple-A by RepuTex, with 45% of the entities rated single-A. The companies received satisfactory scores in each of the rating areas, except for environmental impact, where some were deemed below satisfactory.
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