Bank of America is in the market with a new set of notes for TCW that will refinance the debt backing an existing vintage loan portfolio securitized by J.P. Morgan called Episode IV. The portfolio has been managed by TCW since the mid 1990s, but a source said the investor base for the original transaction has changed, prompting the move to re-securitize the deal.
In 1997 the portfolio was securitized under the Chase Secured Loan Trust (CSLT) program with the various notes held by PennCorp Financial. Penn held the notes in various insurance company subsidiaries while the value of the portfolio had grown to approximately $275 million, the source said. The Penn businesses have since been sold off to multiple investors and so the investor base of the CLO has changed, the source added. Now TCW is taking the securitized market-value portfolio and re-securitizing it into a $300 million cash-flow deal called Celerity, the source added.
"This is a seasoned portfolio that is already in place," said the source. One of the issues in today's market is building the portfolio, he added, noting that this represents a broad vintage of loans. Some of these loans will soon mature, but the deal offers the opportunity to reinvest, he said. Another advantage for the manager is the ability to continue to earn management fees on the deal, said a rival loan manager. An alternative to re-securitization would be to liquidate the portfolio, the manager stated.
CSLT is a synthetic market-value CDO program whereby noteholders provide credit protection to J.P. Morgan through a total rate of return swap. J.P. Morgan holds the loans on the balance sheet. The CSLT program has now been discontinued and a number of other deals from CSLT have been refinanced into cash-flow structures as investors look to stabilize their investments (LMW, 2/17). Last year, ING Capital Advisors refinanced the Endurance CLO and Stanfield Capital Partners refinanced the Hamilton CDO. Most recently, General-Re New England Asset Management refinanced KZH-Pondview into a deal called Stonewell. A manager familiar with the situation said TCW could have attempted to migrate Episode IV into a new J.P. Morgan structure, but the complexities outweigh the benefits and simplicity of the refinancing. The legal owner to the Episode IV assets is a J.P. Morgan entity and the banks consent was needed and given. A J.P. Morgan spokesman could not provide comment by press time.