Bear Stearns CDOs Unwound

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  • 20 Oct 2003
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Investors in two seasoned Bear Stearns collateralized debt obligations have voted to liquidate the transactions due to positive performance of the underlying bonds, according to rival sell-side and rating agency officials. A Bear Stearns CDO official confirmed the liquidations but declined further comment. Market participants say the moves indicate a growing trend--specifically in emerging market CDOs that Bear Stearns has structured--whereby investors are voting to dissolve the structure and recoup gains on the underlying bonds. This is because investors in first loss, or equity, pieces in Bear Stearns' emerging market CDOs generally have an embedded call option

The transactions, Augusta Funding Ltd. and Global Sovereign CBO Ltd., are securitizations of emerging market debt issued in the late 1990s with Bear Stearns Asset Management as the collateral manager. Augusta Funding, originally a $225 million CDO sold in 1997, and Global Sovereign, a 1999 offering, were liquidated in recent weeks after investors in the transactions voted to dissolve them.

The impact on Bear Stearns is mixed, according to one rating agency professional. "From a reputation standpoint, it's not bad and it could even be good, because it's not as if you hit an event of default" to liquidate, says Stephen Anderberg, a director in CDO surveillance at Standard & Poor's, which has since withdrawn its ratings on the CDOs that were collapsed. However, he adds the break-up cuts off CDO management fees to the firm. Although fees are deal-specific, he estimates annual revenue generated from running the two was at least $1 million.

The trend is likely to only occur in emerging market CDOs, which stood up better than high-yield backed bonds and have mostly had equity pieces wiped out due to high losses, Anderberg adds.

  • 20 Oct 2003

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 118,624.20 342 12.90%
2 Bank of America Merrill Lynch 99,769.11 286 10.85%
3 Wells Fargo Securities 87,449.35 261 9.51%
4 JPMorgan 67,955.87 206 7.39%
5 Credit Suisse 50,788.13 152 5.52%