A bearish outlook on arbitrage for collateralized loan obligations is not stopping the rolling tide of managers looking to raise debt, with both Pacific Investment Management Co. (PIMCO) and GoldenTree Asset Management preparing to market new CLOs. Morgan Stanley is leading the GoldenTree Loan Opportunities II deal, while J.P. Morgan is the underwriter for the new PIMCO deal called Waveland INGOTS, with both vehicles approximately $400 million. The shops join a multitude of both established managers and new entrants such as Rabobank International, Sankaty Advisors, Callidus Capital Management and Ares Management in the pipeline. Loan officials at PIMCO declined comment on a potential transaction. GoldenTree's lead loan portfolio manager Fred Haddad was unavailable for comment.
"The arbitrage associated with CLOs is pretty small right now given the run-up in asset prices and the giant spreads it takes to get investors interested in buying the liabilities," said one source. "It is extremely difficult to find investors for the AAA and BB tranches and the equity returns for a normal CLO are quite possibly below 10%," he added. But an analyst said the deals may be taking a little more time to market but they are still getting done. Merrill Lynch Investment Management priced its Longhorn CDO III this month including a first loss AAA tranche that is subordinate to the senior most AAA tranche, in order to ease the problem of placing the higher-rated paper (LMW, 3/17).
PIMCO will be using the proprietary J.P. Morgan INGOTS structure, an upgraded version of the banks Sequils transaction, explained an analyst. INGOTS works by providing the special purpose vehicle with a senior loan agreement that can be drawn upon for defaulted obligations and credit risk securities. If an asset is in default, the CLO can draw down on the loan and reinvest in a security so that the defaulted asset does not have to be sold immediately. The structure of the GoldenTree deal could not be ascertained. The vehicle will be GoldenTree's second CLO.
|Manager||Deal Size ($Mln)||Name Of Fund||Underwriter|
|GoldenTree Asset Management||400||GoldenTree Loan Opportunities Fund II||Morgan Stanley|
|Rabobank International||300||Chiron CDO I||CSFB|
|Sankaty Advisors||400||Race Point II||Deutsche Bank|
|Ares Management||300-500||Ares VII||Deutsche Bank|
|Callidus Capital Management||300||Callidus Debt Partners CLO Fund II||Wachovia Securities|
|Deerfield Capital Management||300||Forest Creek 2003-1||Bear Stearns|
|Nomura Corp. Research and Asset Management||300||Clydesdale CLO||Banc of America Securities|
|David L. Babson & Company||400||DLB CLO||Wachovia Securities|
|MetLife Insurance||300||Madison Avenue CDO V||Salomon Smtih Barney|
|Stone Tower Capital||300||Stone Tower CLO||CSFB|
|Highland Capital||400||Highland Capital CLO||Merrill Lynch|
|Lightpoint Capital||408||Lighpoint Capital CLO||ABN Amro, LINKS|
|Four Corners Capital Management||400||Mondrian||CIBC|
|Source: Loan Market Week|