The largest collateralized debt obligation sector is experiencing a slowdown in the number of new deals entering the pipeline, according to investors and researchers. They said it comes down to simple economics: the rampant run in spreads has made it tougher to find the arbitrage needed to construct deals and as a result fewer new investors are entering the fray. To be sure, there are still at least a dozen or more structured finance deals in the ramp up stage fighting for bonds in the underlying collateral market, although the pace of new managers just beginning to buy securities for deals has slowed.
"Ramp ups are a little tougher. There's just less issuance and everyone wants it," said one CDO manager, referring to a similar slowdown in asset-backed sales. Still, he said at least one bank, which he declined to name, is still targeting to sell six or seven high-quality ABS deals this year although not all may get completed. As a result of the new difficulty in finding collateral, managers are also beginning to take advantage of built-in buckets for synthetics, which previously had not been as commonly used (BW, 1/31).
Gary Witt, managing director at Moody's Investors Service, conceded the pace of new offerings being put together has slowed but said it remains healthy. "[The pipeline] it not as full as it was in November or December, but there are still a lot of people trying to do deals," he noted.