ING Capital Advisors closes its first European CDO for approximately Euro 350m

ING Capital Advisors LLC (ICA) has closed its first European Collateralised Debt Obligation vehicle, Copernicus Euro CDO I BV, for approximately Euro 350m. ICA, a subsidiary of ING Furman Selz Asset Management LLC, is part of the asset management business of the ING Group and currently has investor commitments of approximately $7.5bn in 15 different structures. The new vehicle brings ICA’s total number of CDO issues under management to nine, including both cash-flow and market-value structures.

Structured as a 12-year Netherlands BV, Copernicus was established in September 2000 and is an arbitrage CDO sponsored by ING Capital Advisors as collateral manager. The collateral securing the rated notes consists of at least 75% euro-denominated obligations rated below investment grade, including floating-rate collateral, synthetic securities and structured finance securities. A maximum of 25% of the collateral can be denominated as non-euro obligations with appropriate currency hedges. This will consist of high-yield debt securities to be managed by ICA’s affiliated sub-advisor, ING Ghent Asset Management LLC, which currently has over $1.1bn in high-yield assets under management including four CDOs. As a condition of purchasing a non-euro-denominated obligation, the collateral manager is required to enter into an asset-specific asset swap with a counterparty rated at least AA- to protect rated investors against foreign exchange risk.

The issue, arranged by Goldman Sachs, received long term ratings from Moody’s, Fitch and Standard & Poors as follows: Euro 245m worth of AAA notes (Class A floating rate) priced at 47 basis points above Euribor; Euro 28m of A3/A-/A (Class B1 floating rate) priced at 125 basis points above Euribor; Euro 8.75m of A3/A-/A (Class B2 fixed rate), which has a fixed coupon of 6.55% per annum; Euro 7m of BBB (Class C1 floating rate) priced at 222 basis points above Euribor; Euro 16m of BBB (Class C2 fixed rate), which has a fixed coupon of 7.475% per annum; Euro 12m of BB- (Class D fixed rate), which has a fixed coupon of 11.18% per annum; and Euro 33.25 of subordinated notes. The firm has indicated that the senior tranches, even at fine levels, received particular interest from a mixture of insurance companies, pension funds and the asset management arms of leading banks. The equity fundraising generated interest from all over Europe and in particular from Germany and Southern Europe with investors interested in the combination of ICA’s experience in managing CDO structures with local European credit experience.

Investing in leveraged buyout situations in Western Europe, the US and Canada, the vehicle has a remit to invest around Euro 3-7m per deal. The vehicle features covenants designed to mitigate credit risk, which focus on improving recovery rates via the quality of collateral and credit enhancements provided by the counterparties. In addition, it will be monitored throughout the reinvestment period by tight par-value tests and interest coverage tests.

Simon Hood, senior representative of ICA in London, comments: ‘We are pleased to be one of the first of the predominantly loan-based European CDO structures. We believe the developing European leveraged loan market presents opportunities to invest in businesses with stable cash flows, high market shares and steady growth possibilities. Our platform provides our investors with a team experienced in managing complex CDO structures and with strong credit skills in loans and bonds.’

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