New York-based asset manager ACA Capital is gearing up to manage a structure arranged on the back of Standard & Poor's revamped rating methodology. It joins a growing list of collateralized debt obligations that seek only an S&P rating, because the agency's decreased probability of default allows higher returns on senior tranches. The Street is dubbing these deals E3 trades, referring to S&P's Evaluator 3 model.
The underlying in this transaction is a pool of investment-grade corporates and ACA will manage the portfolio throughout its seven-year life. Called ACA CDS 2006-1, it is currently being marketed to institutional investors in Europe, Asia and the U.S. The size of the transaction and closing date could not be immediately determined.
The deal has been arranged by RBC Capital Markets in London. Structuring officials from both firms declined comment. ACA currently manages four synthetic corporate CDOs, totaling $3.1 billion, and one synthetic asset-backed securities deal. The company has more than $10 billion under management.