Citi and Fortis launch managed equity programme

Citi has launched a managed equity programme in partnership with Fortis Investments, the Brussels-based investment manager. Called Botticelli, the programme comprises a variety of equity tranche-linked notes, each offering different risk-return characteristics. Citi and Fortis will market the transaction in Europe, Asia, the Middle East and the US. The first pricing will occur in mid-April.

According to Citi and Fortis, many market participants expect the current benign credit default environment to continue. Botticelli is designed to capitalise on that view, and tap into the increased relative value of the 0-2.5% equity tranche. The programme targets a projected internal rate of return of up to 21%.

The programme offers investors equity of risk on 0-2.5% of a collateralised debt obligation (CDO). The assets are primarily investment-grade credit default swaps (CDS). The initial portfolio is composed of 80 equally weighted credits. The aim behind the product is to defend the carry typically provided by the equity tranche by managing the portfolio against defaults and credit events.

The seven- and 10-year fund-linked transaction is available in either a funded or unfunded format. The three core products are principal protected notes (PPN), combo notes (with a different mezzanine portfolio) and straight equity-linked notes. The PPN and combo notes can achieve a AAA/AA  principal and interest rating with a small guaranteed coupon paid. The structure offers modelled internal rate of return of Libor + 16% on a straight equity transaction and Libor + 200-250 basis points on the PPN and combo structures. The PPNs are guaranteed by Citi.

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