Barclay's Capital Asset Management closes second CDO Fund

14 January 2002

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Barclays Capital Asset Management has announced that its second CDO fund, Jubilee CDO I S.A, closed in mid-December. The fund, a 13-year Netherlands-based LP, had an initial planned offering of EUR 500m, but due to investor demand was subsequently upsized to EUR 540.77m. Investors participating in the fund come from a broad geographical spread across Europe and Asia, the UK and Ireland. Jubilee follows on from the EUR 500m Blue Eagle CDO which was closed in December 2000. While Blue Eagle was predominately a European bond CDO, Jubilee will invest principally in European leveraged loans, with small carve-outs to invest in high-yield bonds and mezzanine debt securities. This change of direction reflects a trend in the CDO market. Although arbitrage CDOs really took off in Europe in 2001, with the European market becoming more like the well-established US market, the emphasis has moved away from bonds (which are seen as too risky due to the disappointing performance of the European high-yield bond market in 2001, especially after 11 September) to higher-quality leveraged loans. This leaning towards conservatism is also reflected in CDO fund sizes: some onlookers expected the size of funds to grow exponentially as the market expanded, however most CDO managers now maintain that a Â¿500m transaction limit should be maintained. David Forbes-Nixon, head of Barclayâ€™s Capital Asset Management High Yield Investment Group, comments: â€˜We had demand to increase the Jubilee deal further but felt this was the maximum size that could be optimally managed in todayâ€™s European leveraged loan marketâ€™. On the move away from bonds he says: â€˜We chose European leveraged loans for our second CDO because it is a defensive asset class which is well-suited to the current marketâ€™. Other recent leveraged loan CDO funds in Europe include BNP Paribasâ€™ EUR 315m Leveraged Finance Europe Capital I (19 November 2001, page 4) and Duke Street Capitalâ€™s EUR 750m Duchess I (18 June 2001, page 3).As previously mentioned, Jubilee is a conservatively leveraged CDO with only a EUR 53m tranche of equity (subordinated notes).

The CDO structure breaks down into the following tranches: a EUR 344.5m tranche, AAA rated (Fitch and Standard & Poorâ€™s) at 50 basis points above Euribor (E+50); a Â¿84.8m tranche, AA+ rated (Fitch) at E+75; a EUR 6.67m tranche, A- rated (Fitch) at E+145; an EUR 11m tranche, A- rated (Fitch) at zero coupon; a EUR 5m tranche, A- rated (Fitch) set at 6.34% per annum; a EUR 10m tranche, A- rated (Fitch) at Euribor; a EUR 6.9m tranche, BBB rated (Fitch) at E+625; an EUR 8.3m tranche, BBB rated (Fitch) at zero coupon; a EUR 10.6m tranche, BB rated (Fitch) at E+625; EUR 53m of subordinated notes (equity); EUR 21m of A- rated (Fitch) combination notes; EUR 20m of BB+ rated (Fitch) combination notes and EUR 7.5m of BBB rated (Fitch) combination notes. It is planned that Jubilee will be invested primarily in Western European countries, Scandinavia and the UK and Ireland, although it has a small carve out for US issuers.

David Forbes-Nixon, head of BCAMâ€™s High Yield Investment Group, and Faith Bartlett of BCAM will act as joint portfolio managers for Jubilee CDO I S.A. The transaction was arranged and underwritten by J.P. Morgan Securities.