Duke Street Capital Deb t Management finalises pricing of debut CDO fund

18 June 2001

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Duke Street Capital Debt Management has announced that it has finalised the pricing of Duchess I, its debut collateralised debt obligation fund. The vehicle, which is incorporated in Luxembourg, has agreed commitments of e750m and this will be invested predominantly in European buyout situations. Duchess is able to invest up to e25m per deal, although the size of its transactions will vary considerably to maintain diversification within its portfolio. The fund will seek to acquire syndicated senior and mezzanine loans, providing additional debt capacity for the leveraged buyout market. It is anticipated that Duchess I will be the first of a number of vehicles launched by DSCDM. The group perceives a growing need within the market for alternative sources of debt, as the trend towards larger buyouts has stretched the capacity of the banks, increasing the appetite for more sophisticated debt structures. Duke Street Capital Debt Management is a new business sponsored by the Duke Street Capital Group. It is headed by chief executive Ian Hazelton, formerly managing director of the leveraged finance group of the Royal Bank of Scotland. Hazelton has put together a six-strong specialist team from within the banking sector, which includes associate director Zak Summerscale, a former bond portfolio manager at New Flag Asset Management, and David Wilmot, former head of the UK leveraged finance team at SG. The capital structure of Duchess 1 is as follows: 84% (E635m) comprises credit wrapped AAA rated bonds priced at 52 basis points above Euribor; e28m comprises a BB rated strip with a fixed coupon of around 11.35% per annum; and e87m comprises Subordinated Income notes with an internal rate of return of around 20% cash paid over the life of the fund with a minimum coupon in any year likely to be in excess of 12%. Institutions investing in the senior tranches of the issue included a significant number of banks and UK insurance companies, while the more subordinated layers have attracted a number of insurance companies in Germany and Switzerland. CIBC World Markets structured and arranged the fund and has been working alongside Duke Street in the placement of the notes.