Investors recently forced Goldman Sachs to change the capital structure of the $400 million Flagship II CLO, adding a feature that shortens the average life of the double-B rated Class E tranche. Sources said this type of investor influence over CDO structurers is a sign of things to come.

From the inception of the deal, 7.5% of the excess spread that flows down to the preference shares on payment dates will be collected and used to amortize the double-B tranche. This pulls the average life in from 11 years to 7.5 years. This feature does not affect any of the tranches senior to the Class Es, according to sources familiar with the developments.

Goldman launched the debt marketing on the arbitrage cashflow CLO for Flagship Capital, an affiliate of FleetBoston Financial Corp. in early September.

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