Cohen & Co's proposed collateral amendments to four Trups CDOs - Alesco Preferred Funding I, II, III and IV - are being vehemently disputed by Hildene Capital Management, an investor in the deals. Hildene says it objects strenuously both to the proposals, as well as to previous 'impermissible' exchanges of the collateral.

Under Cohen & Co's proposals, the static nature of the CDOs would be changed, with the collateral manager periodically substituting credits. Cohen states that it has identified many issuers of debt securities that seek to retire that debt at discounted prices. However, the investors are accusing Cohen of allowing its affiliates to engage in these exchanges in order to receive advisory fees.

"Since many of these issuers are advised by affiliates of Cohen, the proposed policy could be seen by skeptical investors as an opportunistic attempt by Cohen to allow its affiliates to engage in 'exchanges' in order to receive advisory fees from those issuers seeking to retire debt at discounted prices, to the detriment of the noteholders of the issuer," suggests Hildene.

The firm continues: "Introducing the ability for Cohen to conduct 'exchanges' (as outlined in the proposed policy) will turn the certainty of the existing portfolio into an investment in a changing pool of assets, lowering investor confidence in any such investments and reducing secondary market interest in the issuers' securities, to the detriment of existing investors."

In addition to opposing the proposals, Hildene disputes any implication that Cohen may legitimately engage in 'exchange offers' of collateral under the existing terms of the indenture unless the exchange is for new securities of the same issuer. "Apparently Cohen thinks that an unprecedented market dislocation and a self-serving interpretation of the meaning of an 'exchange offer' in Section 6.16 of the indenture permits it to engage in actions that are impermissible with respect to a fixed portfolio, despite the impact on investors," it continues. "Moreover, Cohen already has engaged in improper 'exchanges' of securities that do not satisfy the requirements of Section 6.16, to the detriment of the respective transactions. We disagree with the interpretation and object to Cohen's actions."

Hildene indicates that instead of seeking to adjust the portfolio to improve ratios - which could allow Cohen to be paid its deferring subordinate management fees - it encourages the manager to waive a portion of its senior management fee to accelerate the repayment of principal of the most senior tranches, improve the overall transaction and bring the transaction closer to compliance with its required ratios. "This would help investors by reducing the debt being supported by the existing portfolio and would bring Cohen closer to being paid its senior and subordinate management fee when the transaction was restored to a healthy status," the asset manager adds.

Hildene concludes that Cohen's actions with respect to 'exchanges' that have already occurred are a violation of the management agreement that could lead to Cohen's removal as collateral manager of the transactions.