FleetBoston Financial is preparing to issue a $1 billion collateralized debt obligation. It began marketing the transaction last week, according to a sell-side banker and analysts who say the deal is being issued to tap strong demand for CDOs backed by senior secured corporate debt, which investors find attractive these days because they provide an extra layer of protection in an uncertain economic time. On the flip side, CDOs of straight corporate debt have practically disappeared from the new issue market, with just one being sold all year, according to Elizabeth Russotto, a senior director at Fitch Ratings who was not working on the deal.
The transaction in question is reportedly being underwritten by Morgan Stanley and Lehman Brothers, in what one rival sell-sider says is an unusual move to have two lead managers on a CDO. He speculates the rather large size of the deal and the fact that several senior secured-backed CDOs have been priced in the last month, including one from Sankaty Advisors last week, is reason for two lead managers to get better distribution. Further details about the transaction and its structure could not be determined.
Andrea Cochran, a spokeswoman at Fleet, did not return a call. Jonathan Strain, a managing director in structured products at Morgan Stanley, and Mark Zusy, head of the CDO banking group at Lehman Brothers, did not return calls.