Washington Square Investment Management is eyeing a second issue of an innovative managed, long/short synthetic collateralized debt obligation it closed only last week. Karan Chadha, managing director in London, said overwhelming investor interest in the leveraged-credit focus of the deal's short bucket prompted discussion of a follow-up. Further details have not yet been decided, however.
The original issue, which generated around USD1.2 billion notional, was dubbed Silver Square. It consists of a long bucket of 100 corporate and sovereign credits and a short bucket of 30. The short pool comprises credits identified by Washington Square as leveraged buyout or corporate acquisition candidates. Chadha said the research-intensive strategy aims to boost returns in the current tight-credit-spread environment by taking advantage of idiosyncratic risk. "The markets are way too tight to be long only, but this is an innovative way to channel down names that show takeover risk and get excess spread," he noted.
The deal was marketed to institutional investors in Asia, Australia, Europe and the U.K. Chadha said German investors were a key target and his group arranged the deal with WestLB to tap this base. Structurers from WestLB in London were not available to comment by press time.
