Citigroup has priced the notes for a TCW Group managed collateralized loan obligation that is comprised entirely of pro rata loans. The USD500 million TCW Pro Rata I deal will synthetically invest in an actively managed reference portfolio of 75-100 revolver and "A" term loans. The deal is said to be the first of its type to exclusively invest in this form of loan which has in recent years been shunned by banks and institutional investors due to poor returns and the complications of funding revolvers.
Citi has retained all of the USD350 million super-senior AAA tranche. According to an official, the desk runs a super senior trading position and wants to keep the notes. Additionally the deal is set up so that the loans are funded on Citi's balance sheet, with the bank charging a super senior spread below 20 basis points to the equity of the deal.
"This was not a balance sheet deal for the bank. It's all about credit risk appetite. [Citi is] willing to retain out-of-the-money credit risk," the banker noted. An official at Citi declined comment and a TCW portfolio manager did not return repeated calls.
