JP Morgan and Cr‚dit Agricole Asset Management are understood to have teamed up on a CPPI transaction linked to a long/short single-name strategy focusing on European high-yield credit. A defining feature of the deal, known as Rozavel, is that the manager has the flexibility to invest in cash bonds and loans as well as single-name and index credit default swaps.

Although this is not the first CPPI deal to allow a mixture of cash and synthetic exposures, the transaction differs from the correlation-driven strategies underlying many recent credit CPPI trades. The transaction uses JP Morgan's version of CPPI, known as SPI, in which leverage varies depending on the type of exposures used.

Some ?210 million of notes have already been issued in a mixture of dollars and euros, and with maturities of seven and 10 years. As is common with CPPI trades, some notes are issued with low coupons while other investors choose the more common option of receiving all returns at the end of the transaction.

The first notes are thought to have been sold in September, and the arranger is now hoping to complete a second tap issue, having already increased its size in October.

According to investors who have been shown the structure, leverage varies from 3.5 times in the case of an entirely directional portfolio, to six times where the manager is combining long and short trades to pursue arbitrage strategies.

Officials at JP Morgan decline to comment on the deal, but Nicolas Freillat, vice-president in credit derivatives marketing at JP Morgan in London, says there continues to be strong demand for CPPI-type transactions, despite the popularity of CPDOs. "We do not see these two products as being in competition with each other," he says. "There may be investors who buy both, but CPDOs and SPI transactions have quite different leverage mechanisms and payment structures and so are likely to appeal mainly to different kinds of investors."

He believes there continues to be healthy demand for principal-protected transactions, and says now that investors have become familiar with the CPPI-type structure, they are focusing increasingly on the managers' capabilities and strategies. "We are likely to see more trades where investors are looking to leverage the performance of an asset manager, rather than mainly taking a view on correlation - as has been the case with many

CPPI deals to date," he says. Michael Peterson