MeesPierson is marketing a single-tranche collateralized debt obligation with a constant-maturity swap payoff to its high-net-worth clients. CDO professionals have earmarked the retail and high-net-worth markets as the next frontiers for the CDO sector and rivals see this product as a bold step into that arena.
The deal, titled CreON 4, is rated AA by Standard & Poor's and referenced to a portfolio of over 200 loans and corporate bonds issued predominately by U.S. and European investment-grade companies. Koen Zoutenbier, director in product development at the Fortis Bank-owned unit in Amsterdam, said MeesPierson decided to sell a AA tranche because the deal itself is leveraged and if it were to be downgraded its clients would still be able to hold single A notes. "If it was single A and went to BBB it could get scary," noted Zoutenbier.
The CDO pays investors the current five-year constant maturity swap rate, or the Treasury rate in the dollar denominated notes, with a floor at 4.25%, which is the 10-year constant-maturity swap rate.
The impetus for adding constant-maturity payoff profiles to CDOs came from a low allocation MeesPierson received earlier this year to an ING perpetual bond. Zoutenbier said its clients were keen to invest in the ING bond because it offered exposure to rising interest rates.
Zoutenbier said it sold the instrument in the Netherlands, Luxembourg, Switzerland and throughout Asia, but regulators in Spain and Belgium turned them down because of concerns over credit derivatives and CDOs.
The private bank sold EUR225 million of the euro notes and USD10 million of the dollar notes. Zoutenbier thinks the reason MeesPierson was able to sell such a large amount was because it is denominated in notes of just EUR1,000. "Getting it approved at the lower denominations means you can reach every client in your bank," he explained.
JPMorgan structured the deal. Zoutenbier said it opted for JPMorgan because it gave a lot of support in pricing and structuring. In addition the U.S. house was keen to sell a CDO to the private banking market.
--Jeremy Carter
