Los Angeles-based asset management firm Centre Pacific has shelved plans for a high-yield collateralized loan obligation (CLO) and is instead seeking to complete a synthetic investment-grade transaction. This will be the first time Centre Pacific has managed an investment-grade structured deal, but the conditions for issuing high-yield CLOs are not opportune, said David Gold, managing director of Centre Pacific. "Issuing the notes/equity is the difficult task in the current environment. Synthetic investment grade issuance is rapid and more certain today," he said. Centre Pacific will be looking for a lead bank in order to execute a transaction in the second quarter, he stated.
Gold noted that the CLO market is tough, and taking an alternate route makes more sense at this time. "There are very few deals getting done, and we will complete a CLO when conditions make better sense," he said, noting that with a synthetic deal, "It is not necessary to distribute the entire capital structure and [the deal] can be executed in days rather than months." He added that the issuer can capture transitory markets opportunities more quickly than with a traditional CDO.
UBS Warburg was working on the high-yield CLO called Cascade CLO (LMW, 8/18), but the relationship was terminated with the decision not to go ahead with the CLO. "We felt a lack of commitment on their part," Gold added. UBS is restructuring its CDO department and transferred Gina Hubbell, responsible for the Cascade CLO, into another department, he added. A spokesperson at UBS declined comment, and Hubbell, who was a managing director in the CDO structured products group at UBS, did not return repeated calls. One analyst said UBS this month hired Jeff Herlyn and Mike Rosenberg from J.P. Morgan as co-heads of its global credit CDO group.
The new deal will be a portfolio of investment-grade swaps, said Gold. Even though this will be the first I-grade deal, the majority of the Centre Pacific team previously worked at Transamerica Investment Services, where the $45 billion in assets under management included a $23 billion investment-grade portfolio, explained Gold. Centre Pacific currently manages two collateralized bond deals and Sierra CLO I.
