Swiss Alternatives Firm Debuts Euro CDO

RMF Investment Group, a Swiss asset management firm specializing in alternative investment strategies, is ramping up collateral for its debut E300 million collateralized debt obligation, RMF Euro CDO. The collateral will be predominantly European leveraged loans, with a 10-30% bucket for high-yield bonds and up to 10% for synthetics. The aim is to focus on European collateral, but the CDO does has a carve-out for non-Euro denominated assets, including U.S. dollar and British sterling loans. "This transaction is the first one RMF has done actively managing the underlying collateral in a discretionary way," said Mark Mink, RMF portfolio manager.

Explaining the timing behind the decision to initiate the CDO, Mink said the European market is offering a very good pipeline for leveraged loans. "This is an environment conducive to asset divestiture among the large conglomerates," he noted. "In the past, companies such as Vivendi Universal, Siemens and Invensys may have turned to trade sales, but everybody is having difficulty stepping up to the plate," he said. But private equity firms are in a good position to buy these assets, he stated.

RMF has acted as a non-discretionary advisor on deals, including the Stanfield/RMF Transatlantic CDO with Stanfield Capital Partners. Furthermore, RMF has managed high-yield portfolios for a number of years in Europe, but chose to predominantly use loans instead of high-yield bonds because of the security and low volatility of loans, Mink commented. The decision to select Goldman to underwrite and market the notes was made for several reasons. "[Goldman] is the most experienced CDO structurer in Europe for high-yield and loan cash-flow CDOs," he said, adding that because this is RMF's first time as a discretionary collateral advisor, the firm could learn a tremendous amount from Goldman's internal procedures. J.P. Morgan is the trustee for the CDO.

The deal has a very flexible structure, Mink said. This enables RMF to increase the quality of the portfolio and decrease the spread, or on the flipside, if RMF believes the economy is entering a positive credit cycle, it can migrate down the credit curve and buy more high-yield bonds to increase spread. The synthetic bucket, meanwhile, acts a way to diversify, he added. Goldman has also incorporated a triple-B paydown feature. Under a high default scenario, a trigger has been set that diverts over 50% of the excess interest for equity holders to pay down the triple-B notes. This pays down the most expensive liabilities first, subsequently leaving more cash flow for the equity holders over the life of the transaction, Mink noted.