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Credit Investor Debuts With Some Twists

07 Oct 2004

Dynamic Credit Partners, a structured finance investor, has come out with a collateralized debt obligation with a handful of noteworthy features, according to Jim Finkel, CEO and co-founder in New York.

Dynamic Credit Partners, a structured finance investor, has come out with a collateralized debt obligation with a handful of noteworthy features, according to Jim Finkel, CEO and co-founder in New York. He said its Stockbridge CDO squared, which is due to close in the coming weeks, will have a very low proportion of the underlying collateral backed by high-yield and investment-grade corporate bonds.

CDOs backed by unsecured corporate credit have been some of the hardest hit by rating agencies in recent years and investors are generally preferring deals backed by more secure assets, such as asset-backed securities and bank debt. The percentage of high-yield and investment-grade bond-backed CDOs in this CDO squared is now about 10% and won't be more than 15%, he said.

The vehicle, which is being underwritten by Citigroup, will also not have a subordinate management fee, which is rare. Instead, it features a structure in which Dynamic Credit will get what Finkel calls an incentive fee--but only after the debt tranches on the capital structure are paid and the equity holder generates a certain return. "We're taking less cash flow out of the deal," he said, adding this aligns the firm's interests more with those of investors.

The deal is the first for Dynamic Credit, a small New York firm which was started at the end of last year by Finkel, a former member of the European CDO effort at Deutsche Bank in London.

07 Oct 2004