Moody's downgrades Deutsche-backed CDPC after debt repayment

A credit derivative product company sponsored by Deutsche Bank, Newlands Capital, has repaid all its outstanding debt, according to Moody’s, which has downgraded the vehicle’s counterparty rating in response. Newlands, which was set up in 2007 and wrote only a handful of super senior credit swaps before the crisis kicked in, had $385 million of debt in the form of loans.

According to Moody’s, the debt was repaid at par. It adds that Newlands has the right to prepay its debt if loan investor consents for certain actions were not given. However, this does not explain Newland’s motivation for redeeming the debt, which would almost certainly be worth less than par currently.

The removal of this mezzanine layer in the CDPC’s capital structure leaves Newlands with just $130 million in equity to support its unfunded credit default swap positions. As a result, Moody’s downgraded the entity’s counterparty rating from Aaa to Aa2 and left it on review for further downgrade.