Cairn Capital has priced its first collateralized debt obligation backed by mezzanine asset-backed securities. The timing reflects the liquidity now in the ABS credit-default swap market which allows the manager to pick seasoned mezzanine, rather than being dependent on primary paper, said Andrew Jarmolkiewicz, who focuses on ABS at the London-based manager.
The USD500 million Cairn Mezzanine ABS CDO is backed by CDS of mostly subprime and midprime residential mortgage-backed securities. The deal also has a USD325 million unfunded super senior liquidity facility and a 10% bucket for other CDOs.
The deal will be at least two-thirds synthetic with the possibility of going up to 100%. Cairn is using the hybrid cash/synthetic structure to give it flexibility to invest in seasoned collateral across vintages through CDS of ABS, Jarmolkiewicz said.
Moody's Investors Service and Standard & Poor's rated the CDO. The deal was priced Aug. 11 with the junior triple-As at 43 basis points over LIBOR. Morgan Stanley is underwriter.
