Hyperion Capital Management has come to market with a collateralized debt obligation noteworthy for its allocations to manufactured housing and aircraft bonds. The two sectors have been much maligned in recent years because CDOs with exposure to them for diversity's sake suffered a rash of downgrades as the underlying collateral experienced steep losses. Yet the new Hyperion deal, the $300 million Millerton ABS CDO, will have up to a 1% weighting in aircraft and up to a 5% bucket for manufactured housing
John Dolan, cio and head of the CDO product line in New York, noted these sectors have been sharply devalued and now offer value in an environment where spreads are tight. "They've gotten a lot cheaper and [investors] recognize we have processes in place to analyze them," he said, noting Hyperion has experience in credit-intensive asset classes and in subordinate parts of the capital structure. "We like to take a look at asset classes that are out of favor," he added.
The Millerton transaction, which is Hyperion's first actively managed CDO and was priced early this month via Credit Suisse First Boston, will only hold MH securities rated double-A or higher and aircraft-backed notes that are currently receiving principal.
The deal also had a seven-month ramp-up period, compared to the more normal 60- or 90-day span, which Dolan said was necessary because Hyperion is a selective buyer and generally passes on most deals it sees.
To be sure, while the deal will have some exposure to the off-the-run asset classes, the bulk of the underlying collateral will be held in more commoditized assets, with about 70% in residential mortgage-backeds.