J.P. Morgan Chase's collateralized debt obligation trust group plans to start calling dealers for prices on high-yield and asset-backed securities used as underlying collateral in CDOs as part of a new pricing service that will also obtain marks on loans. The role is an unusual one for a trustee, according to one collateral manager, who nonetheless said he welcomed the offer and would consider using the new service. Currently, managers collect pricing on the underlying securities and report back to the trustee and this process can be cumbersome, particularly for subordinate securities that are favored in some CDO structures because they offer higher yields.
As part of the new service, J.P. Morgan will even obtain marks on securities in deals it does not act as trustee on, according to Rob Tomicic, v.p., senior product manager for CDOs, who said it is designed to make the management process more efficient for CDO issuers. "Typically, the collateral manager will supply the marks, but in this case instead of managers having to do this, we can do it. It is separate and somewhat of a check," he explained, adding, "it makes the process a lot more seamless." In the process, J.P. Morgan will contact a preselected group of dealers, picked by the collateral manager, for marks on securities if the manager chooses to have the trustee do so.
Tomicic declined to specify the new service's cost but said it will be in addition to traditional trustee costs. He said a handful of collateral managers have already signed but declined to name them.