Dublin-based Harbourmaster Capital, an investment manager running EUR4 billion (USD4.79 billion) in assets, is gearing up to manage a EUR500 million (USD600 million) collateralized loan obligation. The structure will feature a portfolio cross-currency swap to hedge the currency mismatch between sterling assets and its euro-denominated liabilities.
In the swap, Harbourmaster CLO 6, an offshore special purpose entity, will pay floating sterling principal and interest and receive floating euro principal and three-month EURIBOR minus a spread. The spread is determined by an asset-weighted foreign-exchange rate which adjusts every time Harbourmaster adds an asset to the portfolio.
In addition, the transaction features a string of deep out-of-the-money sterling put options to partially hedge the fx risk of the assets. Harbourmaster CLO 6 will purchase the options with strikes expected to be set at 30% of the spot rate at closing and that will mature on each note payment date.
Bank of America is counterparty on the swap and options, as well as transaction arranger. Alan Kerr, credit analyst at Harbourmaster in Dublin, declined comment on the deal, referring calls to BofA. Officials at BofA in London did not return calls by press time. The trade is expected to close this month.
