Citigroup has priced the notes for a TCW collateralized loan obligation that is comprised entirely of pro rata loans. The $500 million TCW Pro Rata I will synthetically invest in an actively managed reference portfolio of 75-100 revolver and "A" term loans. The deal is said to be the first of its type to exclusively invest in the pro rata, which has in recent years been shunned by banks and institutional investors due to poor returns and the complication of funding revolvers (LMW, 2/3).
Citi has retained all of the $350 million super-senior triple-A tranche. Additionally, the deal is set up so the loans are funded on Citi's balance sheet, with the bank charging a super-senior spread below 20 basis points to the equity of the deal. The reason for the bank holding all the notes is not because they could not be sold, emphasized bankers. One explained that Citi holds super-senior positions in a number of deals and that other banks are doing this. According to a source, the desk runs a super-senior trading position and wants to keep the notes. "This was not a balance sheet deal for the bank. It's all about credit risk appetite. [Citi is] willing to retain out-of-the-money credit risk," the banker noted. An official at Citi declined comment and a TCW portfolio manager did not return repeated calls.
The triple-A tranches below the super senior-piece priced at LIBOR plus 85 basis points. According to market participants, the $33 million equity piece took a long time to fill. The debt, however, was well-received due to its short tenor and debt buyers understood the deal and the credit risk mitigants in the collateral. The deal works by the special purpose entity (SPE) issuing several classes of notes including credit-linked notes. Citi then acquires the assets for TCW, selected by the manager and the SPE writes credit protection to Citi, explained a banker.