Sporl & Co., a money manager with a history of corporate bond management for pension funds, is canvassing potential investors for $500 million-$1 billion in collateralized debt obligation liabilities it plans to issue in the coming months. The deal would pool corporate credit risk and would mark the firm's first CDO, says Ed Sporl, president, noting it signals a shift in the firm's business. The firm is currently seeking to place the equity and junior notes of a potential transaction and then will select an underwriter to structure the deal, he says. It is in preliminary discussions with a handful of large banks, whom he declined to identify, that may retain part of the offering as part of their own balance sheet management. He declines to give a timeframe on when the CDO will be completed.
Sporl says improving credit fundamentals and still-available arbitrage make the timing right to raise cash to fund the liabilities at the present time. He adds the offering would likely be sold as a synthetic transaction, since it can be difficult to obtain all the necessary bonds in a cash-funded transaction. "This will be my first foray into the credit default swap market; it's easier to do it synthetically," he explains.
The firm is part of a growing trend of traditional money managers with corporate and/or asset-backed credit expertise entering the CDO market as a means of increasing their managed assets and generating additional fee revenue, according to one CDO structurer. Sporl says he expects to find demand for his offering because a long economic downturn has created a fair amount of fallen angels, forcing investors who traditionally buy double- and triple-A credits in the unsecured market to turn to structured finance for high-quality paper.