The emerging markets fixed income group at Trust Company of the West is entering the European market with a $250 million to $350 million collateralized bond obligation, the TCW Euro GEM I.

The new CBO, which is expected to price in May, is one of the first euro-denominated CBOs, said Nathan Sandler, a managing director and portfolio manager at TCW.

"The emerging market [component] is providing a lot of strong attributes to the structure of the fund," Sandler said. "It's obviously providing yield and capital appreciation, but it's also providing global diversity."

TCW Euro Gem I's final capital structure is still to be determined, but the firm anticipates that it will be made up of three classes of debt, a triple-A piece, a single-A portion, and a triple-B piece. The most senior tranches will likely be floating rate, Sandler said. Both Moody's Investors Service and Standard & Poor's will be rating the transaction.

The new vehicle is by no means TCW's first foray into the world of emerging market CBOs. The firm has issued four other instruments of this nature over the course of the past few years, which together total $1.4 billion in assets. The four funds have exposure to markets in nearly 40 different emerging market countries, and about 50 companies within those countries.

"What we're trying to do at any given moment is identify the most unique opportunities available across the full investor universe of our asset class," Sandler said. "We're always looking for ways to use the raw material of emerging market cash flows that we can slice and dice to deliver the most attractive risk-adjusted returns to the widest range of investors."

TCW's flagship emerging markets CBO is the TCW GEM II, which has experienced ups and downs since its launch in 1997, including a rating downgrade.

GEM II was issued at peak valuations, right when the Asian crisis began, Sandler said. "Everything that unfolded from there on really posed a direct challenge to the success of that fund."

Still, despite the negative ambiance that was to surround emerging markets for the two years following the Asian crisis, TCW was able to construct a viable portfolio strategy to restore the original ratings over the senior and mezzanine notes, without compromising any of the classes represented in the capital structure, Sandler said.

In addition to rearranging the assets under management, TCW sought consent and solicitations to amend the indentures, in order to provide more flexibility in managing the portfolio in crisis.

At inception, GEM II was structured primarily to invest in emerging market corporate bonds. Currently, the investment concentration is about 60% emerging market corporate debt and 40% emerging market sovereign debt. The makeup of the new investment vehicle, Euro GEM I, is likely to be along the same lines.

Apart from Sandler's emerging markets fixed income group, TCW is involved in the CBO business in an array of other markets. The major asset classes represented are U.S. and European leveraged finance, including high yield and mezzanine and mortgage-backed securities

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