Pacific Investment Management Co. is back in the ABS CDO market as a manager for the first time since 2004 with Costa Bella CDO 2006-I, a USD425 million deal set to price early this week.
Last year, Scott Simon, head of ABS and MBS, said CDOs backed by structured finance assets were off the radar because of tight spreads and concerns about the subprime sector.
The manager's return reflects growing liquidity in the ABS CDS market rather than a bullish view on housing, said Dan Ivascyn, ABS portfolio manager. "Before, we were forced to take positions in the primary market and it became extremely difficult to ramp names we like," he said. The development of the CDS market now allows the manager to express different views on the market.
The hybrid deal will be backed mostly by home equity ABS, with buckets for other structured products such as CMBS and other CDOs. The deal thus offers greater diversification than other recent deals in the sector, which have been entirely backed by home equity ABS. The size of the buckets, including one for shorts, is still being worked out, as well as the percentage of synthetic and cash assets, Ivascyn said.
Merrill Lynch is the underwriter. There are no formal plans for another deal, although PIMCO will consider doing another one.
