JPMORGAN AND CAIRN CAPITAL CLOSE 1ST FULLY MANAGED RATED CPDO
Story date: 2007.7.09
London, 22 June 2007 - JPMorgan has closed the first fully managed rated CPDO, managed by Cairn Financial Products Limited ("Cairn"). Cairn CPDO I was placed globally, across four continents, and attracted a diverse group of investors. The notes issued in three series by Cairn CPDO I are rated Aaa and Aa2 by Moody`s.
Cairn and JPMorgan have worked extensively over the last six months to build upon the technology of the first generation of CPDOs to incorporate full management features.
"Cairn CPDO features many innovations to allow the manager to have discretion over the algorithm and to actively trade the underlying composition making Cairn CPDO the first fully managed CPDO notes to be issued" says Moody`s in its press release. "The manager has the ability to actively trade a combination of the indices and extra long and short single name CDSs".
The transaction is structured around the iTraxx and CDX indices to take advantage of their superior liquidity but can then be adjusted to become a bespoke portfolio based on Cairn’s credit view through the use of single name CDS.
As investment manager on behalf of the issuer, Cairn can take long and short positions in single names, replicate the index through single names, skip a roll, and change leverage. These features provide the flexibility required to assist in the generation of alpha within the transaction.
Cairn CPDO I is an issue of 10 year notes with an early redemption feature designed to increase the chances of cashing in early for investors. The base case leverage for Cairn CPDO I starts at around seven times for the Aaa notes and 10 times for the Aa2 notes.
The leverage mechanism is designed to take advantage of the structural positive gamma of CPDOs (i.e. buy low, sell high), hence leverage steps up with spreads. However, Cairn has the flexibility and discretion to choose, within certain limits, the exact leverage it considers appropriate based on its credit market view.
Cairn already manages other market value products across its US$ 9bn of assets under management.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $1.3 trillion and operations in more than 50 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset and wealth management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its JPMorgan and Chase brands. Information about the firm is available at www.jpmorganchase.com
Cairn Financial Products Limited is part of the Cairn Capital Limited group of companies. Cairn Capital has four distinct but complementary business lines: a specialist asset management business, a credit funds business, a structuring and advisory business and a property development financing business. Cairn Financial Products Limited is authorised and regulated by the UK Financial Services Authority.
Media Contact:
Colette Campbell, +44-20-7325-7084, colette.c.campbell@jpmorgan.com
