Deutsche Bank Outbids B of A For Babson Portfolio

Deutsche Bank placed the winning bid on a $128 million portfolio auctioned by Babson Capital Management last week, beating out Bank of America, which placed the 101.31 cover bid. As first reported on LMW's Web site last week, the portfolio was auctioned as a whole and has 85 credits, said a trader, who noted it is mainly "B" loans, but the package also includes some "A" loans. Bids were due Thursday at noon and J.P. Morgan, Morgan Stanley and Wachovia Securities were also in the chase, traders said. Babson officials and Deutsche Bank traders declined comment. Traders at the other firms either declined comment or did not return calls.

One portfolio manager commented that these auctions have been common all year due to the large number of CLOs raised in 1998-99 that have now reached the end of their reinvestment periods. Earlier this year, Deutsche Bank won the bid for an approximately $200 million portfolio of leveraged loans auctioned off by insurance giant AIG Global Investment Group, and in recent months J.P. Morgan secured a $290 million portfolio from TCW. In the same week Wachovia took a $250 million portfolio sold by Sankaty Advisors.

The high prices paid also indicate the demand in the market for loan assets. "You have to work off the premium you are paying," a manager said, adding that some firms just have too much cash. But with cash flooding into the asset class through retail investors and new CLO vehicles, the heavy demand for loans is expected to continue. For example, Babson also priced its latest leveraged loan CDO last week. The $450 million Babson CLO 2004-II is notable for pricing at unheard of levels, according to a J.P. Morgan analyst. The five AAA tranches in the deal priced at LIBOR plus 32 basis points. The AA, A and BBB notes priced at LIBOR plus 57, 105 and 215 basis points, respectively. Morgan Stanley underwrote the notes for the deal, which contains a $35 million revolver to enable the manager to purchase revolving loans. Babson is one of the most experienced CLO managers out there, with eight CLO transactions containing 95% senior secured loans.