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| Tracy Pridgen |
Financial Guaranty Insurance Co. is looking to start wrapping its first collateralized debt obligations and is in the process of setting up a subsidiary that can offer credit default protection to investors, said Tracy Pridgen, managing director and head of CDOs in New York. He said FGIC is evaluating a couple of opportunities whereby it could provide a secondary wrap on a senior class of a CDO and is going through the requisite legal and regulatory steps of establishing a credit-default swap subsidiary. He expects the subsidiary will be implemented by the end of the year. Pridgen joined this spring from Rabobank International with a mandate to set up a CDO platform. The new effort comes as part of a change in ownership for FGIC, which was sold by General Electric Capital for $2.1 billion last year to a handful of investors including The Blackstone Group. Market professionals have been expecting FGIC to step up its post-sale structured finance activities (BW, 8/11/2003) and the attention on CDOs is part of a "general repositioning of FGIC being more of a full-service monoline," Pridgen said.
Specifically, FGIC is looking to offer its services to investors in CDO sectors such as leveraged loans, high-quality asset-backeds and bank risk management transactions. "As a matter of the math, the day we do one deal we will have increased our market share. But we don't have discussions about market share, we have discussions about risk," he stressed. Monolines typically enter contracts ranging from 10-30% of their net par assets and FGIC's activity is likely to be closer to the lower end of that spectrum, he said.
As more monolines offer CDO-wrapping services, the attachment level, or rating at which they will offer guarantees, is likely to come down the credit ladder from triple-A, he predicted. Pridgen added he has met with prominent investors and banks as part of setting up a CDO platform and estimated 50-75% of senior classes are being placed with some form of monoline participation. This is even as monolines are generally absent from the documentation of CDOs these days and are offering wraps based on individual arrangements.
FGIC recently hired Beth Russotto, senior director at Fitch Ratings, and Lynn Finkel, v.p. in securitization at Cendant Corp., to work in the CDO group under Pridgen. It also recently hired Rick Watson, head of asset-backeds and CDOs at HSBC in London, to run its European business (BW, 6/21).
