A slew of loan managers are raising new collateralized loan obligations, seeking to capitalize on strong demand from insurance companies and financial institutions, which has caused liability costs to plummet. Guggenheim Investment Management, Callidus Capital Management, Lyon Capital Management and CypressTree Investment Management are the latest managers marketing deals, said bankers and loan portfolio managers.
The liabilities on CLOs this year have dropped to levels not seen since before the Russia crisis. Loan giant Stanfield Capital Partners' Modena CLO is the most recent loan-backed CDO to price, with the AAA-rated tranche selling at LIBOR plus 35 basis points. At the beginning of the year similar tranches were pricing over 20 basis points higher. Officials at Stanfield did not return calls for comment.
Officials at Guggenheim declined comment, but a portfolio manager said the vehicle is called Green Lane CDO and is being marketed by Wachovia Securities. The firm's debut CLO was also completed by Wachovia at the end of 2002 and employed the proprietary APEX structure (LMW, 12/22). This will be Guggenheim's third vehicle. Lyon Capital, an arm of Credit Lyonnais that manages loans, raised its first CLO last May (5/22). The new deal is called LCM LP II. CypressTree's latest deal is called Hewett's Island CDO Ltd 2. The Callidus deal, meanwhile, is led by J.P. Morgan and CDC IXIS, according to a different manager. Managers and officials at the respective firms either declined comment or did not return calls.
But with loan supply still being outpaced by demand, analysts are telling CDO investors to pay close attention to the underlying collateral in deals. Many of these CLOs are now including significant buckets for second-lien loans, synthetics and middle-market loans. According to one banker, nearly all CLOs are including synthetic exposure, as the market for protection on bank debt increases and given the trouble in sourcing attractively priced loans.