Loan managers are waiting on the sidelines before raising new deals after expectations of a downpour of mergers and acquisition and leveraged buyout credits turned to a drizzle. "A lot [of managers] are saying they are looking, but they cannot get assets," says one buyer of collateralized loan obligations for a bank. "They say they will call the placement agents when they are ready," he adds.
Amy Gibson, a v.p. who manages the leveraged loan assets for 40/86 Advisors, formerly Conseco Capital Management, agrees. "The supply expected earlier in the year did not materialize, but there has been a recent pickup in new deals and [leveraged buyout] activity, which is encouraging." But she adds, "Everyone is on the sidelines right now." Gibson says 40/86 would like to do another CLO later in the year but whether it does will be determined by the collateral available in the market. She says so far in 2004, new supply has been constrained and, combined with the refinancings, this has limited the available pool.
A CDO manager who recently priced a new deal notes that the economics of structuring such a deal, though tight, still definitely make sense. "The cost of the liabilities has tightened but the big question is accumulating collateral," he says. Buy-side firms that are currently in the marketing phase with CDOs of senior secured debt include The Carlyle Group, Prudential Investments and American Express Asset Management.