JPMorgan and North Asset Management, a London-based alternative asset manager, are pricing a combination note which references emerging-market and corporate credit risk. The note's AA-rated principal is linked to a senior tranche, while coupon payments are linked to an equity tranche of a credit-default swap portfolio. The majority of the portfolio references global emerging-market credits, both corporate and sovereign, while the remaining is corporate credits.
North will manage the portfolio throughout the life of the seven-year deal, using a cash trading account embedded in the note which acts more like a separate fund, explained Alex Haidas, managing director in London. "This will give us the flexibility to take long and short positions," he noted.
The CDO, called North EM Hybrid CDO IV, marks the fourth synthetic CDO transaction under management for the group, but the first to delve into equity risk and the first combo notes. Haidas explained value is most prevalent in the first-loss piece and this transaction couples that risk with arbitrage opportunities in emerging markets. "We have a strong understanding of the macro story in peripheral Europe," he noted.
The transaction has been sold to institutional investors in Europe and is expected to price finally in the coming days. The deal's notional could not be determined and structurers from JPMorgan were not available to comment by press time.