Cheyne Capital Management, a U.K. hedge fund with USD27.7 billion of assets under management, is gearing up to manage its second synthetic collateralized debt obligation of asset-backed securities. This transaction features a USD400 million underlying portfolio of total return swaps referencing investment-grade mezzanine tranches of CDOs of asset-backed securities. The total return swaps are U.S. dollar denominated and reference 30% BBB-rated securities, 22.5% A-, 20% A, 15% A, 7.5 BBB+ and 5% A+.
The transaction, called Cheyne ABS Investments I, will be priced this week by Credit Suisse First Boston, which has also marketed the deal to clients globally. Investors include proprietary desks and specialist credit funds. Clayton Perry, managing director in the CDO group at CSFB in London, said the total return swap structure allows Cheyne to tap into a wider variety of collateral, specifically across vintage, collateral managers and ratings. "It gives them the balance of power between supply and demand," Perry said.
The legal maturity of the CDO is 40 years, in line with the underlying ABS, many of which are long-dated RMBS. It joins Cheyne's High Grade ABS CDO which closed last year and follows the Cheyne/CSFB transaction CLO Investments I, which comprised a portfolio of total return swaps on leveraged loans which closed in April. "Cheyne has the required blend of skills to identify, analyze and monitor this kind of structured finance instrument," Perry said. Structuring officials at Cheyne declined comment on details of the deal and why they chose to again work with CSFB.
