Primus Asset Management closed its first collateralized loan obligation last Tuesday, a $400 million portfolio. Started as a derivative product company (DPC), the firm viewed CLOs as a natural progression. Because of its background in credit default swaps, it now has its eyes on a synthetic CLO made up of loan-only CDS. Dealers have already approached Primus about doing one and the firm is evaluating that option.
Primus CLO I priced its Triple-As at 25 on Dec.1. Its equity piece is $26 million and about 10% of the portfolio is a bucket for high yield and second liens. It also has a 20% synthetic bucket that could include either LCDS or CDS, although the firm does not intend to use it right away. "Given where spreads are right now in loan CDS, it's not economically advisable to do so. But if the market turns and negative basis narrows or goes away, it is a good basket to have in place," Don Young, senior portfolio manager, said. "We don't think this current basis environment is always going to be in place."
It is currently working on a second CLO, expected to come to market in the second quarter of 2007. "Our plan is to access the market depending on the quality of assets that are available," Young said. "If the loan market is producing high-quality assets, we will certainly bring more CLOs. If it isn't, we don't have a lot of pressure to grow regardless of the market environment."
Young joined Primus in March from Octagon Credit Investors, where he was a principal and high-yield trader. He reports to Charles McLendon, who is president of Primus Asset Management. In late spring the firm hired three senior analysts including Nick Campbell, who joined from Eaton Vance; Michael Feeney, who joined from Assurant; and Jessica Adams, who joined from Kingsland Capital. Brooke Bresnan joined from Houlihan Lokey as a credit analyst.
Primus opened in 2002 as a DPC, writing credit protection on high-grade single name corporates, but it has also done tranche trades and worked with ABS. It started doing synthetic CDOs in 2004 and in April or May set up a total return swap with Bank of America within its hedge fund to start participating in the loan market. Following that it mandated Lehman Brothers for its first CLO.
"Lehman and Primus have had a long relationship together," Young said about the underwriter choice. "They have been involved in numerous capital raises. They have always been very supportive of the firm." Primus Asset Management is one of the principal operating subsidiaries of Primus Guaranty.