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North Sea island CDO 1 closes $550 million CDO program

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ABN AMRO closed its $550 million synthetic CDO program, North Sea Island CDO 1, which provides exposure to ABN AMRO’s $3 billion portfolio of high-grade asset-backed securities under its North Sea Funding arbitrage conduit. The transaction is the first draw under the program and coincides with the restructuring of the conduit.

“The new Basel II rules are already changing the way conduit sponsors operate their vehicles, and these two North Sea transactions lead the current wave of restructurings we expect will occupy the conduit sector’s attention for the next several years,” said Mark Nicolaides, the partner leading the Mayer Brown Rowe & Maw team that advised on the structuring and documentation. “We have developed considerable expertise in this area and see further improvements in conduit technology as a critical competitive requirement.”

North Sea Funding is the first bank-sponsored arbitrage conduit to determine credit enhancement according to Moody’s Investors Service CDO ROM model and Standard & Poor’s CDO evaluator model. The program combines pay as you go technology with cash settlement features. ABN AMRO, as the protection buyer in the CDO, may adjust the CDO reference portfolio so that the portfolio remains in line with the North Sea Funding Conduit. “The structure permits additional issuances of securities that allow ABN AMRO to ramp up the size of the North Sea Island and North Sea Funding credit default swaps at the same pace as the growth of the North Sea funding portfolio,” explained Nicolaides.

The program will comprise five tranches of notes all with a legal final maturity in September 2095, and a call option in September 2012.

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