BNP Paribas closes its debut CDO fund on Euro 315m

19 November 2001

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BNP Paribas Leveraged Funds Group has announced that it has finalised the pricing of its debut collateralised debt obligation fund (CDO), Leveraged Finance Europe Capital I, a 12-year Netherlands-based BV. The vehicle, which has agreed commitments of Euro 315m, will be invested in European buyout situations and is the first in a planned series of CDO funds to be raised by the group.

The vehicle has been funded through the issuance of Euro 177m of Moodyâ€™s-rated Aaa notes (Class I senior floating rate) priced at 49 base points above Euribor; Euro 64.5m of Aaa3 notes (Class II senior floating rate) priced at 78 base points above Euribor; Euro 14m of Baa2 notes (Class III-A Mezzanine fixed-rate), which had a fixed coupon of 7.083% per annum (ten-year bond, +220 base points); Euro 15m of Ba3 notes (Class IV-B Mezzanine Floating rate) priced at 630 base points above Euribor and Euro 36.5m of subordinated notes with a semi-annual residual coupon, which is offering an internal rate of return of more than 15% to investors.

While CDO funds have long been popular financing instruments in the US, BNP Paribas has become one of a select group of European banks to launch such a vehicle, following on from AIB, which raised a Euro 350m CDO fund earlier this year (12 February 2001, page 1), Duke Street Capital Debt Management, with Duchess I (18 June 2002, page 3) and ING Capital Advisors, which also launched a Euro 350m CDO this year (19 June 2001, page 3). BNP Paribas Leveraged Finance believes that institutional investors, which have recently seemed eager to gain exposure to sub-investment grade credits, will be a major force in the years to come in the European credit market.

Investors

Morgan Stanley is sponsoring Leveraged Finance Europe Capital I; other commitments are understood to have been provided by a range of institutional investors.

Investments

Leveraged Finance Europe Capital I is looking to invest in a managed portfolio of senior and mezzanine debt across Europe, including high-yield debt securities, providing an average of Euro 10m per LBO. It will invest roughly 75% of the total in senior debt and the remainder in mezzanine.

People

Jean Bergeret of BNP Paribas leveraged finance coordinated the fundraising effort on behalf of BNP Paribas Leveraged Finance Europe.