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Derivatives

Manager Readies First Public Synthetic CDO

Fisher Francis Trees & Watts, a global fixed income portfolio manager with USD40 billion in assets under management, is set to manage its first rated, synthetic collateralized debt obligation.

Fisher Francis Trees & Watts, a global fixed income portfolio manager with USD40 billion in assets under management, is set to manage its first rated, synthetic collateralized debt obligation. The CDO aims to draw juice from a tight credit spread environment by referencing non-investment grade credits. The forward-starting, seven-year, USD200 million structure offers investors exposure to a pool of 100 non-investment grade, European and U.S. corporates, sovereigns and financial institutions and kicks-in on March 20 next year.

Named Deveron, after a river in Scotland, it is imbedded with a synthetic trading account which FFTW will use to fund short credit positions in up to 10% of the underlying portfolio, said Catherine De Chillaz, a member of the structured finance group in London. The purpose of the account is to hold the revenues gained from the short bucket. At maturity 80% of account returns will go to investors and 20% to FFTW. De Chillaz added the CDO was chosen by her group because the highly managed, high-yielding structure has proved popular with investors. Deveron was arranged by Citigroup, and is being marketed to portfolio managers, insurance companies and pension funds globally and is expected to close this month. Officials from Citi declined comment.

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