A little more than a year after European financial services giant Fortis Group launched its structured finance and CDO initiatives within the U.S., the company is preparing to issue its first CDO. Fortis Investments USA - the subsidiary of the European fund manager - will make its U.S. CDO market debut with the $1.5 billion Orient Point CDO Ltd., a cashflow deal backed primarily by RMBS. The deal is scheduled to close Oct. 25.
The $1.3 billion, triple-A rated A1 tranche has guidance set in the 27 basis point area over three-month Libor and the $99.3 million triple-A rated A2 tranche is being talked in the 45 basis point area over Libor. The $47 million double-A rated B class, has guidance set in the 60 basis point area over Libor. The $12 million of single-A rated C and class paper is making the rounds at 135 basis points over Libor and the $19 million single-A minus D class are talked in the 135 and 165 basis point areas over Libor, respectively. And the $14.5 million triple-B rated E class is being marketed in the 270 basis point area over Libor. Fortis will retain $16.5 million of an equity piece, which is about 1.1% of the deal.
With a 150 day ramp-up period and a four-year reinvestment period, Orient Point has a legal final maturity of March 2045. Merrill Lynch will bring the deal to the market and LaSalle Bank National Association will serve as trustee.
RMBS, primarily first and second lien subprime ABS, accounts for roughly 61.7% collateral pool, while prime-rated mortgages are 8.23% of the collateral. The remaining 30% of the portfolio consists of structured finance CDO notes.
The deal is similar in collateral composition and structure to Maxim Advisory's $2 billion Jupiter III deal, which priced August 10. The Jupiter III had a 69.5% RMBS concentration and a 29.4% bucket for CDOs. While the Orient deal has a maximum weighted average rating factor of 1.4, the Jupiter deal has a slightly lower, 1.2 ceiling. Maxim cushioned its Jupiter deal's A1 and A2 tranches with 15% and 7.5% credit enhancement of overall collateral, compared with lesser cushions of 13.5% and 6.88% on the comparable Orient tranches. Maxim's parameters call for a minimum weighted average margin on floating collateral of 0.59%, compared with 0.625% in the Orient Point deal.
Fortis in December had stated plans to launch two CDOs prior to year-end, primarily backed by RMBS and CMBS (see ASR 12/6/04). Will Braman, U.S. CEO of Fortis said at the time the group's plan called for $5 billion in assets under management within three years. How the deal prices will be a good indicator of current market conditions, as well as how Fortis's U.S. CDO management team will be perceived. Fortis declined to comment on the deal prior to its pricing.
To bolster its move into the U.S. structured product and CDO markets, the U.S. subsidiary of Fortis Investments hired former ACA Capital COO and head of structured finance Maryam Muessel as its chief investment officer of U.S. fixed-income and global structured finance to help lead the formation of the company's ABS investment team, based in New York. The team has a staff of nine, including former Banca Intesa securitization chief Karim Berichi, who will manage the portfolio, as well as five ABS analysts an ABS trader and a CDO structuring and compliance monitoring employee, according to Fitch. Staff from Fortis's Boston office are also intended to provide assistance to the New York portfolio management team, primarily for risk control and quantitative research.
Fortis Group has some $98.7 billion in assets under management, included structured credit funds and CDOs. The company's CDO portfolios total roughly $7 billion, including synthetic investment-grade credits, CDOs of CDOs, emerging market CDOs and European ABS CDOs, according to Fitch.
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