UBS Global Asset Management is set to start buying and selling credit-default swaps to manage a collateralized swap obligation structured by JPMorgan. The 10-year transaction, issued under JPMorgan's Empyrean Finance synthetic CDO program, will be the first structure managed synthetically by UBS GAM.
Four bankruptcy-remote special purpose entities will issue a series of fixed, floating and zero-coupon credit-linked notes linked to a portfolio of high-yield bonds, namely corporates in the U.S. UBS GAM will manage the reference pool through substitution or by buying or selling protection on underlying credits. Short positions, however, are limited to 10% of the bucket and must be closed at the notes' maturity. The transaction also aligns the manager's interests with investors by attaching a fee incentive. UBS GAM will receive payment, divided into a senior and junior fee, linked to its ability to avoid losses on the portfolio.
Structuring officials at UBS GAM did not return messages by press time and motivation for adding the synthetic structure to its management stable could not be determined. Structuring officials at JPMorgan declined comment. The transaction is being marketed to investors in the U.S. and is expected to close in January.
