Brightwater Capital Management, the USD21 billion structured finance subsidiary of WestLB Asset Management in New York, is managing a first-of-a-kind leveraged super senior collateralized debt obligation. The USD55.625 million notes, linked to the USD1 billion asset-backed securities CDO Blue Heron II, are the first to use weighted-average rating factor triggers.
Hans-Jurg Lips, managing director at WestLB in London, said so-called WARF triggers are more transparent than standard mark-to-market or spread triggers because they are determined by ratings. "With WARF triggers, there is no ambiguity," he said. Blue Heron's current WARF is 17.7, which is in the Aa2 band, and it has time-dependent triggers at Bbb levels of 350 over one year and 450 over two years, at which points investors have the option to de-lever or unwind the transaction.
Ratings analysts and structurers at other banks said the structure is attractive to investors because it is easier to understand and model, but added banks previously have not offered ratings-based triggers because it may leave them with spread risk. "With market-value triggers, we rate two moving parts: rating transition and spread movements within the rating," said Eun Choi, analyst at Moody's Investors Service in New York, explaining agencies only rate rating transition in WARF-trigger deals.
The Blue Heron notes were rated from Moody's in Paris. Brian Colgan, portfolio manager at Brightwater in New York, did not return calls or an email.
