Highland Capital Management is in the process of closing a $500 million collateralized debt obligation after underwriter Salomon Smith Barney issued $458 million in notes two weeks ago to fund the vehicle. Bankers close to the deal said Highland had been holding off closing the deal in hopes of ramping up additional collateral which would upsize the vehicle to roughly $600 million. "They changed their minds and decided to get it out the door," said one banker, declining further comment on whether the fund was able to secure additional assets or if it decided to respond to a favorable time in the bond market. He noted, that unlike other funds, Highland does not have plans to ramp up any additional assets after close. Officials at Highland did not return phone calls by press time.
The CDO-Highland Loan Funding V-is comprised of roughly 90% senior leveraged loans and 10% high-yield bonds (LMW, 6/4). Chase Manhattan Bank is acting as trustee on the deal. The structure for the deal's liabilities include: a AAA-rated, $352.5 million tranche priced at LIBOR plus 43 basis points; a AA-rated, $43 million tranche with $33 million priced at LIBOR plus 68 basis points and the remaining $10 million tranche swapped to a fixed-rate coupon of 6.83%; a $24.5 million, A-rated tranche priced at LIBOR plus 127 basis points; a $30 million BBB-rated tranche priced at LIBOR plus 250 basis points with $5 million swapped out to a fixed-rate coupon of 8.66%; and an $8 million BB-rated tranche priced at LIBOR plus 650 basis points. The $45 million balance has been funded with equity reportedly provided by Highland.