Duke Street Capital Debt Management has closed its second CDO, Duchess II, at €550 million. This is the largest European Collateralised Debt Obligation fund to close this year and brings the firm’s CDO funds under management to €1.55 billion. The fund is already 80 per cent invested and should be fully committed within three months.
CIBC World Markets and Société Generale structured and arranged the transaction and are working with Duke Street in the placement of the notes. The fund will invest in both sterling and euro denominated senior and mezzanine loans on the leveraged finance market.
The new fund is smaller than its predecessor, Duchess I, which at €1 billion is the largest cash flow arbitrage CDO in Europe focusing on LBO debt. This fund held a first close at €750 million in June 2001 and was increased last year via a tap issue. At the same time Standard and Poor’s also upgraded the fund’s rating on B notes from BB to BB+.
The fund was fully invested by last July and has so far shown strong performance in terms of portfolio quality and margins on underlying assets. The fund is invested predominantly in senior secured loans, with small investments in mezzanine loans and high yield bonds. Duchess II will adopt a similar investment approach.