Fortis Bank recently completed one of the first synthetic CDOs incorporating credit default swaps with varying maturity dates. The Regatta CDO, issued by Solent Capital, includes both five-year and eight-year maturing credit default swaps. The structure is expected to become more popular as innovation within the managed synthetic CDO market continues developing.
The deal references 147 investment-grade corporate names and three sovereign names. Fortis bought protection on half of the portfolio for five years and the remaining half for eight years through a single-tranche CDS, according to a Fitch Ratings presale report. The A class notes reference a notional 5 billion, while the B, C and D classes reference 2.5 billion.
The actively managed deal allows for a five-year reinvestment period, during which the CDO's 50% five-year maturing bucket can be replaced with assets maturing on the scheduled maturity date, which is December 2013.
The structure is "among the first of its kind," according to Fitch. By using a mix of coupon maturations, the structure allows a portfolio manager "more flexibility in navigating their portfolios in a tight spread environment, and at the same time [is able to] position them should spreads start to widen, enabling them to generate trading gains and increased coupons," according to Fitch.
Deutsche Bank Securities is acting as trustee and administrator on the deal. Privately owned Solent, based in London and Jersey, was founded in April 2003, and began managing assets that December. The company currently has some $3 billion in assets under management within its CDO holdings, as well as $700 million in hedge funds. The company currently has four publicly rated CDOs on the market: Spinnaker I, Gennaker I, Rhodium and Main Sail I, as well as two privately placed deals.
(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.