ABN AMRO, pioneer of the market's inaugural Constant Proportion Debt Obligation (CPDO) in July last year, has launched the first fully managed and fully rated CPDO, managed by Fortis Investment Management France S.A. (Fortis Investments).
Steve Lobb, Head of Credit and Alternatives Marketing at ABN AMRO said: 'We are delighted to be working with Fortis Investments on this exciting development in the structured credit market. Having achieved incredible success with the original CPDO last year, it was very important to us to continue the evolution of this technology by offering a fully-managed option to appeal to a wide range of investors each with different needs. Fortis Investments has a strong track-record as a market-leader in structured credit management and as such is the ideal partner to effectively add value to a fully-managed deal.'
This CPDO generates returns through dynamically managed exposure to a bespoke credit portfolio of single name CDS. The size of the portfolio is adjusted dynamically so that the CPDO only takes the leverage it needs in order to make the scheduled principal and interest payments.
The transaction offers investors a ten year Aaa tranche and a ten year Aa2 tranche rated by Moody's for both principal and coupons in major currencies. As well as choosing credits with a range of maturities for the bespoke portfolio, Fortis Investments will also have access to the full range of credit indices to effectively balance the portfolio. The manager will have the ability to go short names to protect the notes against default risk, downgrade risk or spread jump risk on single names. They will also have the option of implementing relative value trades.
Fortis Investments will be able to use its vast quantitative expertise developed with CPPI to manage the leverage and portfolio notional in order to further express its views on the outlook for credit on spreads.
Cian O'Carroll, European Head of Structured Finance at Fortis, commented: 'As the next generation of CPDO, this deal will allow us a true level of manager flexibility; single name 'stock picking', idiosyncratic management, leverage flexibility and a full shorting capability, all within our full quantitative wrapper. Such a product is of course well positioned for the full run of the credit cycle.'
Richard Whittle, Head of Credit and Alternatives Trading at ABN AMRO: 'As with the original CPDO, this product has been innovated to address investor demand. The nature of the bespoke active management means the deal can be fully flexible according to the clients' needs. This is an important development in CPDO technology and another key innovation in structured credit.'