Sankaty Advisors, the fixed-income affiliate of Bain Capital that has $8.7 billion in assets under management, is set to close on a $550 million market-value CDO called Prospect Funding I this month. Deutsche Bank is leading the CDO, which will contain loans, bonds, public equity and synthetic contracts, according to a Standard & Poor's report on the deal. Calls to Jonathan Lavine, cio of Sankaty, were not returned.
CDO participants said market-value deals have become something of a rarity in the last couple of years, with most managers choosing to do cash-flow vehicles. "Originally market-value deals were structured with hard triggers. These could be an arbitrary number that would force the manager to delever and the vehicles would not adapt," said one analyst.
Market-value deals do have significant advantages over cash-flow deals though. They allow the manager to have 100% discretionary trading versus a cash-flow deal that is more limited. This vehicle also has the ability to invest in credit default swaps both as protection buyer and protection seller; single-name, total rate swaps, both long and short positions; and cash short and synthetic debt portfolio investments under correlation swaps, according to S&P.