J.P. Morgan has priced the notes for Bank of Ireland's debut collateralized loan obligation, the $467 million Partholon CDO I, which will invest in both Western European and U.S. loans. A loan manager explained the firm has leveraged finance teams in Dublin and the U.S., so the loan management business can use this infrastructure and expertise. This will lead to a more geographically diversified portfolio, which is better for the overall portfolio. In addition to U.S. and U.K. term loans, the deal will invest in euros, various Scandinavian currencies and Swiss francs. Another benefit is that U.S and U.K. recovery rates on leveraged loans are higher than in France and Italy, she stated.
In the U.S., Pat MacBride, senior v.p., heads the Conn.-based team. He referred questions to Martina Maher, associate director, in Dublin, who declined comment. Bank of Ireland established an acquisition finance unit back in 1996 to arrange and participate in leveraged finance deals. The bank has been looking at the CLO market for the last two-and-half years in order to use the infrastructure and generate additional fees, a source said. "J.P. Morgan was selected to lead the transaction off the strength of its CDO desk. Goldman Sachs has done a lot of CLOs, but in Europe, J.P. Morgan has the most experience in European leveraged loans," the source added.
The E271.44 triple-A tranche is priced at EURIBOR plus 61 basis points. The cost of issuing the liabilities is higher in Europe than the U.S., while spreads on the underlying collateral have a lower average spread. But Bank of Ireland, in exchange for possible lower equity returns, is offering a more stable, conservative structure, the source noted. There is a 10% bucket for mezzanine loans, but no high-yield bucket, which should lead to a lower default rate. "[Firms] are saying they can generate 20% equity returns, but that is with high-yield exposure," she added.