Investor Uses Reverse Auction To Build Portfolio

An unidentified investor sought to put together a portfolio of loans quickly last week by asking dealers to submit offers on a variety of credits.

  • 28 Jul 2006
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An unidentified investor sought to put together a portfolio of loans quickly last week by asking dealers to submit offers on a variety of credits. Dealers said the tactic, known as a reverse auction, is very unusual. Maybe with good reason: one dealer said the investor was only able to buy 40% of the $66 million in loans it planned to buy and that it was not very successful. "There wasn't a lot of interest in it," he said.

The investor, who could not be identified, approached a handful of dealers seeking to buy $2-7 million positions in approximately 25 names. In a reverse auction the investor buys from a dealer or dealers that offer the lowest price. Credits the investor sought to buy included Rexnord, AES and Time Warner. It was unclear how many banks submitted offers, but Deutsche Bank and Credit Suisse were among the handful of banks that participated.

Another trader speculated the investor sought to buy a portfolio this way because the firm wanted to build exposure quickly. "This rarely happens. Typically you would work with one dealer. The investor is probably looking for significant exposure quickly. It is a way to expedite the process," he said.

One dealer said reverse auctions are more common in the bond markets. It happens all the time in the credit default swap market, said another trader.

  • 28 Jul 2006

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 BNP Paribas 14,443 29 18.07
2 Bank of America Merrill Lynch (BAML) 8,264 27 10.34
3 Lloyds Bank 7,329 24 9.17
4 Citi 6,748 19 8.44
5 JP Morgan 5,220 8 6.53

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 118,616.77 341 11.09%
2 Bank of America Merrill Lynch 94,721.79 272 8.85%
3 JPMorgan 92,612.23 269 8.66%
4 Wells Fargo Securities 82,597.19 239 7.72%
5 Credit Suisse 70,475.74 184 6.59%