The London arm of Gulf International Bank recently kicked off its fourth high yield collateralized bond obligation, and is looking to launch a European junk CBO as its next move in the asset class, GIB portfolio manager Ken Barker said.
Effective last week, the $300 million Falcon IV Collateralized Bond Obligation is 100% invested in dollar denominated high yield corporate bonds, 20% of which have been issued by European companies.
GIB's U.K. arm, formerly known as Saudi International Bank (SIB), is acting as both fund manager and co-underwriter with parent GIB in Bahrain and Credit Suisse First Boston.
Investors, a substantial portion of whom are based in the Middle East, will be able to select the appropriate notes depending on their risk appetite.
The Fourth CBO of its Kind
The fund is modeled after its three predecessors, each of which also consisted entirely of high yield bonds or a combination of high yield bonds and loans.
Launched in 1991, 1994 and 1995, these three CBOs were managed under the firm's previous incarnation as SIB.
The latter was one of the first international players in the U.S. high yield market and began investing in the asset class in 1986. SIB kicked off its first high yield investor fund in 1989.
SIB's acquisition by GIB is part of the reason for the five-year span between CBOs number three and four, Barker said. However, the decision to kick off the Falcon IV at this point largely came down to market conditions.
"Conditions are good for launching a CBO," he said. "Yields are higher than they've been for some time."
The firm has also been building its high yield investment team over the last few years and now has a total of 13 professionals - seven credit analysts, three portfolio managers, and two senior credit officers.
As far as the next steps go, GIB is looking to launch a European CBO within the coming six to nine months or as soon as the market conditions in Europe are appropriate.
The fund will probably be similar in size to the Falcon IV, and will fall in the EURO300 million to EURO350 million range.
"The capacity of that type of product is enormous," Barker said. "Really what we need to see is more diversity in the [European] high yield market."