Alcentra raised eyebrows last week with the pricing of its $375 million Pacifica CDO III, which bankers said was the tightest spread seen on a top-rated tranche of a leveraged-loan CDO in several years. The $278 million of triple-As were placed at LIBOR plus 39 basis points by Credit Suisse First Boston. Stephen Bruce, cio and managing director of Alcentra, and CSFB bankers declined to comment.
At the beginning of the year, comparable tranches on deals were pricing over LIBOR plus 50, but recently, American Express Asset Management, Ares Management and Angelo Gordon & Co. have been pushing the 40 barrier. "If you can get term financing at LIBOR plus 40 or below, across 60-70% the of capital structure, there's still a decent amount of juice left over for the equity," a CDO banker noted.
"A lot of the triple-A guys are putting money to work," said a banker, explaining why spreads are moving in. He said demand is coming from European firms, conduits and insurance companies for this paper. But he also said supply is limited, especially when compared with last year. Abbey National offloaded a multi-billion dollar portfolio of paper into the secondary last year and this is not on anybody's horizon now, he said. Loan managers are also taking longer to bring deals to market, he added.
One banker said CDO desks displayed skepticism when CSFB went out at such tight levels for Alcentra. But in the end the deal was upsized from $300 million to $375 million. Other managers in the pipeline are expected to score tight pricing, but managers or bankers were reticent on whether they would break 40. INVESCO was set to price its Champlain CDO on Friday, as LMW went to press. Price talk on the top-rated tranche was LIBOR plus 40. Anthony Clemente, managing director of INVESCO, declined comment.