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Duke Street tops up Duchess

The private equity firm’s debt management arm has announced a E250m tap issue for Duchess I, Europe’s largest CDO fund investing in LBO-related debt.

Duke Street Capital Debt Management (DSCDM), the debt management division of Duke Street Capital, is to increase the size of Duchess 1, Europe’s largest Collateralised Debt Obligation (CDO) fund investing in LBO-related debt.

Closed originally in June 2001 at E750m, Duchess is set to raise another E250m from existing investors as well as first time buyers.

To raise the additional capital, DSCDM is using a tap issue arranged and underwritten by CIBC World Markets, a mechanism that has not been used for a CDO fund before.

Ian Hazelton, chief executive of DSCDM, said that selling the idea of an increase to existing equity holders in the fund had been straightforward owing to the simple capital structure of the fund as well as its strong performance to date. “There has not been any default event, we don’t have any credit concerns, and both the average margins earned on the assets and the shadow-credit ratings achieved are better than forecast”, Hazelton said. He added that topping up the fund by way of a tap issue was significantly cheaper than raising a new fund altogether.
 
The proceeds from the increase will be used to buy more debt assets, upping the proportion of senior debt in the overall asset mix. Duchess currently comprises 75 per cent senior secured loans, 10 per cent mezzanine loans and 15 per cent high yield bonds.

Upping the senior debt component is expected to prompt Standard & Poor’s to upgrade the rating on the fund’s B notes from BB to BB+.


85 per cent of the E750m raised so far have been invested, and DSCDM expects to have the larger fund fully invested within six months. Duchess, which has an expected life cycle of 12 years, is looking to generate a return of 20 per cent to equity holders.