Pricing on the triple-A notes for American Express Asset Management Group's latest collateralized loan obligation came in slightly higher than market levels due, in part, to comments made by Chairman Kenneth Chenault last year. Following a $370 million loss on the American Express CDO portfolio, Chenault made headlines by saying the group "did not fully comprehend the risk underlying these structured investments during a period of persistently high default rates." Even though the losses were primarily in bond vehicles managed by the team in Minneapolis, not with the CLO deals managed by Lynn Hopton and Yvonne Stevens, analysts believe the comments made a difference. Repeated calls to the two managers and the AmEx press office were not returned.
The vehicle, known as Centurion VI, is a $400 million leveraged loan-backed offering, which priced the $308 million triple-A notes at LIBOR plus 48 basis points at the start of the month. This compares unfavorably to two deals that were priced in late July at the tightest spreads seen so far this year. The triple-A notes forDeerfield Capital Management's $300 million CLO, Bryn Mawr I, were priced at LIBOR plus 43 basis points, while those of PIMCO's Wrigley 1were priced at LIBOR plus 42.
Analysts reached a consensus that timing definitely played a part in the wider spread, with one adding, "There are a lot of CLOs trying to get done." But another was more caustic and said, "The chairman says they don't understand. It cannot help the marketing effort." Historically, however, American Express has done well with CLOs, one analyst noted, adding that the Centurion II deal has performed well relative to other CDOs based on over-collateralization tests.