London-based asset manager Cairn Capital and UBS have disclosed the launch of a managed, leveraged, super senior collateralized debt obligation tranche late last year. The structure is believed to be the first public deal to hit the market since the structure was first mooted in August (DW, 8/19).
"Leveraged super senior is an attractive product to investors and becomes more attractive if there is a portfolio manager to generate alpha," said David Littlewood, director at Cairn in London. He noted his firm was keen to take on such a product after rating methodologies for leveraged super senior tranches were launched by rating agencies.
The CDO, called MASS (Managed Absolute Super Senior), issued two classes of AAA-rated notes, one with eight times leverage and the other 10 times. Both are linked to a portfolio of 100 corporate credit-default swaps with an average rating of Baa2. Cairn will manage the credit, de-leverage and spread risk, delivered in the form of a spread-based trigger, over the seven-year tenor. It has the ability to substitute reference entities, increase leverage, monetize subordination and enter into short positions, Littlewood noted.
MASS closed in December and was sold into Europe and Asia. It was well received by investors comfortable with the mechanics of the play, said Vanaja Indra, structurer at Cairn. Other City dealers questioned the need for a manager in these typically static deals, given the seniority of the tranche and the value that has been squeezed from the sector over the past six months. "There is not as much return as there was in the summer," admitted Indra, "But there is still enough spread given the stability of the product." The size of the deal could not be determined and officials at UBS could not be reached for comment by press time.
