Merrill Lynch last week priced notes backing its $350 million collateralized loan obligation, Longhorn CDO II, which will continue to ramp up a small percentage of assets. Merrill Lynch Asset Management is manager on the deal and, according to a banker familiar with the situation, it is the underwriter as well. There is an outside third-party equity investor that could not be determined by press time. The deal is structured as a cash-flow arbitrage transaction with investment-grade bank loans and high-yield debt as collateral. Percentages of the two asset classes could not be determined. Calls to officials at Merrill Lynch were not returned by press time.
The debt supporting the deal is broken into a Standard & Poor's AAA-rated $233 million tranche priced at LIBOR plus 50 basis points; a $46.4 million AA-rated tranche priced at LIBOR plus 80 basis points; a $2.6 million AA-rated fixed-rate tranche priced at LIBOR plus 100 basis points; a $15 million A-rated tranche priced at LIBOR plus 155 basis points; an $8 million BBB-rated tranche priced at LIBOR 260 basis points; a $4 million BB-rated tranche priced at LIBOR plus 740 basis points; a $9 million BB-rated fixed-rate tranche priced at 750 basis points. The equity tranche is $32 million.