Following the closing of its first CDO fund at euro750 million, Duke Street Capital Debt Management (DSCDM), the debt fund management business of the Duke Street Capital Group, has appointed Leona Campbell as associate director. She joins from Bank of Scotland Structured Finance where she originated and arranged senior and mezzanine debt in the European acquisition finance market.
“Leona brings with her important hands-on experience in credit analysis, structuring and arranging of senior and mezzanine debt, the focus of our first collaterised debt obligation fund – Duchess I,” said Ian Hazelton chief executive DSCDM.
Duchess I closed in June and in a turbulent fundraising environment, where many funds are struggling to get the allocations they are looking for, was successful in ramping up investment, to become the largest European CDO fund of its kind. CIBC World Markets structured and arranged the transaction and has been working alongside the Duke Street team in the placement of the notes.
The fund is investing in both sterling and euro denominated assets, targeting senior and mezzanine loans within the leveraged finance market. It has less of a focus on the high yield bond sector than some of the European CDO funds that have come onto the market in recent years. But it will still be making some investments in high yield, be it on a cautionary basis.
Ian Hazelton believes CDOs will become a core component of buyout funding, as bank capacity for large buyouts is being stretched. The launch of the fund has enabled the group to diversify both its investment and skill base and to participate from an additional angle in Europe’s growing mid-market buyout scene.
Hazelton added: “We are extremely pleased to have raised such a large fund and to have successfully placed the notes. The size of the fund, which will provide additional debt capacity for the leveraged buyout market, will allow us to hold substantial positions in each asset.”
Duchess I can take up to euro30 million per transaction. Director David Wilmot, who joined the firm in November last year from Société Generale, said: “As the biggest fund of its kind in Europe, it has enabled us to write substantial ticket sizes per deal.”
The nature of a CDO is to create a sector diverse portfolio. In terms of composition, Wilmot says two thirds of the fund will be senior debt in leveraged buyouts and the remainder will be mezzanine with selected investments in high yield bonds. He stresses that as far as high yield bonds are concerned, the fund is not looking to invest in what it considers to be speculative high yield bond placings. Wilmot adds that there is good value to be found in bonds if you invest carefully, which is what Duchess is seeking to do with senior debt and mezzanine transactions.
Duchess is well on the way to building up its portfolio of commitments. By the end of August, says Wilmot, it is expected that the fund will be at least euro500 million invested out of its euro750 million. Looking at the pipeline of new deals, it is thought the fund will continue to perform at a similar rate. Says Wilmot: “One of the things investors look at is how quickly you can get the money to work for you.”
He adds that there has been a growing enthusiasm for this genre of investment vehicle. “The investment community has shown a good degree of interest in CDOs as a new investment class. Proof of this is that we were able as a first time manager to raise the largest fund in Europe of its kind.”