Merrill Lynch won a Franklin Templeton loan portfolio auction last Wednesday with a winning bid of 101 3/4, far surpassing the cover bid of 101 submitted by Bank of America. JPMorgan, Bear Stearns and UBS were also invited to participate and their bids came in just behind B of A's offer.
As first reported on Credit Investment News' Web site Thursday morning, the surprisingly high bid has a number of market participants scratching their heads. The reason for the high bid could not be confirmed, but Merrill is expected to put the assets into one or more collateralized loan obligations, said one observer.
Merrill has long been the top underwriter for collateralized debt obligations and in 2007 it plans to become a more active CLO underwriter. According to Thomson Financial data, Merrill ranked first in 2006 in CDO underwriting and 17 in CLO underwriting. In December it brought Tom Majewski over from Bear Stearns to help jumpstart its CLO effort and already has 18 to 20 mandates for CLOs for 2007. Ken Margolis, Merrill Lynch managing director, declined comment. Calls to Mark Boyadjian, senior v.p. and head of Franklin Advisers' Floating Rate Debt Group, were not returned.
Some in the market have speculated that the equity investor of Franklin's CLO may have dictated that the portfolio be liquidated to get back their principal investment so that it can be redeployed into a new CLO. This could not be confirmed. Merrill has led Franklin portfolios in the past though it is unclear if it led this one or if this is even related.
The $475 million portfolio consisted of over 200 tranches of very liquid names, including a $10 million piece of Georgia-Pacific Corp.'s term loan "A," a $12 million piece of Cablevision's incremental term loan and $11 million of HCA's term loan "A." Other large positions include about $8.8 million of Affinion Group's term loan "B," $6.5 million of Capital Automotive REIT's term loan "B" and almost $8 million of VNU's term loan "B."
The average spread for the portfolio was 216 basis points over LIBOR. One of the lowest paying coupons was on the $3.7 million term loan "A-1" for General Growth Properties. The credit has a LIBOR plus 1 1/4% spread. One of the highest paying coupons was the LIBOR plus 4 3/4% spread on Thompson Creek Metal's first-lien term loan and CavTel Holdings term loan "B." There was $1.8 million of Thompson's loan in the portfolio and $3.1 million of CavTel.
