Zais Group, a collateralized debt obligation manager based in Redbank, N.J., is managing a first-of-a-kind CDO squared, using a cash-flow structure and synthetic assets. The USD400 million deal, called Tower Hill CDO, after the highest point in Redbank, also is Zais's first synthetic corporate CDO under management. JPMorgan underwrote the deal, which closed August 16 and has been fully placed.
Tower Hill consists of seven 10-year tranches, rated BBB to A, referencing via credit-default swaps seven corporate CDOs, or an aggregate of about 400 investment-grade corporate credits. There is a cash-trapping feature, by which returns above 10% of the USD32 million equity tranche are retained as a cushion for senior note holders. Equity investors receive the excess cash at the end of the deal. An official close to the deal said this feature aligns the interests of equity and debt investors.
Sean Clifford, portfolio manager at Zais in New York, declined comment, and Rahul Murlidharan, lead structurer at JPMorgan, was unavailable for comment. Michael Xie, senior analyst at Moody's Investors Service in New York, said he has not seen any other cash-flow structure synthetic CDOs squared.
Zais has USD10 billion under management and has issued a string of previous synthetic deals, such as its Zing series referencing asset-backed securities (DW, 1/20).
