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Wachovia Offers CDO Manager Rankings

Wachovia Securities has put together a ranking of collateralized debt obligation managers based on collateral deterioration over time that places a number of leveraged loan managers near the top of the pile.

Wachovia Securities has put together a ranking of collateralized debt obligation managers based on collateral deterioration over time that places a number of leveraged loan managers near the top of the pile. Stone Tower Debt Advisors, GoldenTree Asset Management, Guggenheim Investment Management, Mountain Capital, Black Diamond Capital Management and Fidelity Investments all are near the summit reflecting the fact that loan deals have outperformed other asset classes. However, the very top performer is a bond deal from Bear Stearns Asset Management.

"The very definition of what constitutes a good CDO manager and how to quantify this concept is debatable," admits Arturo Cifuentes, managing director and CDO analyst at Wachovia, who designed the rankings. "To make matters more complex, certain managers are very good for the equity, but not for the mezzanine piece and some are good for the senior tranches," he added, stressing that Wachovia is not attempting to give a conclusive answer.

Wachovia does subscribe to the theory though that a good manager should love all tranches equally and this is a parameter that could be used with other factors. Even if certain things are difficult to measure, the more information the better, Cifuentes adds.

The approach taken is based on Moody's Investors Service's adjusted average annual overcollateralization loss or gain and has been termed the Z factor (as in Zorro, as in "CDO managers: Rank Them All ­ And Let Zorro Sort Them Out!," which is the title of Cifuentes' report). The OC is the notional amount of the collateral pool divided by the notional amount of the corresponding liabilities. The collateral deterioration is found by computing the ratio between initial OC minus current OC, divided by initial OC. "What we did was rank using data from Moody's database. The more negative the Z factor reflects OC improvement. If someone is not there, then we are not changing it," Cifuentes said. For the full ranking of the managers based on the criteria, click here.

Ranking Of The Top Managers Based On The Z Factor
Note: Managers are listed starting with the most negative Z factor first. A negative Z factor is good, while a positive number is bad. Average vintage is simply the average year of close. Bold letters are used for managers with “adopted” deals.
    No. of  Average   
  Collateral Manager Deals Vintage Z Factor
HY Cash Flow CBO Bear Stearns Asset Management Inc. 1 1999 -13.914
Cash Flow CLO Stone Tower Debt Advisors LLC 1 2003 -3.553
European Cash Flow CBO Invesco, Inc. 1 2002 -3.227
European RES AXA Investment Managers Paris 1 2002 -2.323
Cash Flow CLO GoldenTree Asset Management LP 2 2002.5 -2.175
Cash Flow CLO Guggenheim Investment Management, LLC 1 2002 -2.031
HY Cash Flow CBO T. Rowe Price Associates, Inc 1 2000 -1.975
Cash Flow CLO GSCP (NJ) L.P. 1 2003 -1.96
Cash Flow CLO Fuji Bank, Ltd. New York Branch 2 1999.5 -1.913
CDO of ABS/CDO Delaware Investment Advisors  1 2003 -1.63
Cash Flow CLO Ballyrock Investment Advisors LLC 2 2002.5 -1.558
CDO of ABS/CDO Credit Based Asset Servicing & Sec. LLC 2 2003 -1.525
Cash Flow CLO ING Capital Advisors, Inc. (Adopted) 2 1998.5 -1.506
Cash Flow CLO Black Diamond Capital Management 2 1999.5 -1.393
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