Innovative multi-maturity CDO from BNPP
Under a €20bn programme, Omega Capital will issue 11 classes of notes rated from triple-A to triple-B by Fitch Ratings and Standard & Poor’s. The notes are denominated in euros, US dollars and yen. The scheduled maturity of the deal is June 20 2015.
The initial portfolio of the deal includes 4-year (7% of the portfolio), 6-year (21%) and 8-year (72%) assets, a noteworthy feature in the synthetic CDO market because deals typically have a bullet maturity, where the maturity of all the assets is the tranche maturity.
According to BNP Paribas, the benefit of a multi-maturity CDO is the ability the manager has to initially select some assets which have a shorter maturity than the tranche maturity date. During the life of the transaction, it can then adjust the maturity for each asset and therefore the average life of the portfolio, based on both its fundamental credit views and the relative value of the credit curves.
At closing, the transaction’s portfolio will consist of 140 predominantly investment grade corporates. For each class of notes, Omega will enter into a CDS contract with BNP Paribas for eight years. The foreign currency exchange rate risk of the non-euro denominated notes will be hedged via a fixed exchange rate swap provided by BNP Paribas.
Solent Capital will manage the portfolio of Waypoint, which, according to analysts at S&P is a particular strength of the deal due to its experience as a credit portfolio manager with several CDOs under management. Analysts at S&P note that Solent will be allowed to make changes to the portfolio over time, subject to meeting certain substitution criteria guidelines; for example, no ABS or SPV can be referenced in the portfolio and the number of reference entities must be between 80 and 160.
The deal was marketed in Europe, the Middle East and Asia, and may be tapped in May.