JPMorgan Asset Management in Europe is gearing up to manage its first synthetic collateralized debt obligation since launching a CDO business in London in January. The transaction is a single-tranche CDO and JPMAM will manage the underlying portfolio of 150 predominately investment-grade corporates throughout the life of the seven-year deal. Officials from the group did not return phone messages by press time and reasons for debuting with this transaction could not immediately be determined.
In the deal, dubbed Angel Court, JPMAM has the right to substitute deteriorating credits and bring in high-yield names as well as enter short positions, but the portfolio will be long-only at inception. Notably, any high-yield names in the pool will feature a fixed recovery rate of 70%, which one rating agency analyst said is far above the most common recovery rates of around 50%. Recovery rates are set at high levels to help achieve an attractive rating.
The CDO is structured by Calyon, which transfers the risk associated with the portfolio through a credit-default swap with a special-purpose vehicle. The SPV will in turn transfer risk to the capital markets through EUR200 million in fixed- and floating-rate notes. JPMAM is able to team up with Calyon because it is not tied to its parent company's products. At the launch of the CDO business in January, head of the group Dominic Powell said JPMAM will work with dealers that offer the best terms for investors.
The notes are now being road showed and investment is expected to close next week. Officials from Calyon did not respond to emails by press time.