An Asian bank is in the process of auctioning off the equity and management contract of Seaboard CLO 2000 in an effort to rid collateralized loan obligation exposure ahead of FIN 46. The managers of the CLO are now at Orix Capital Markets after Seaboard & Co. became a part of the financial services firm several years ago. But the Seaboard team still manages the $308 million deal led by Credit Suisse First Boston, according to a source. The investor is concerned that the debt will be consolidated on the balance sheet, the source added.
"Certain consents would be needed, but the expectation is that a different manager would come in," the source said. He noted the seller has made a decision on which firm has won the right to manage the deal and has notified the bond insurer, but he declined to name the winning bidder or the price. A CDO banker said the process is still ongoing and that it is not necessarily the case a new manager would step in. "At the moment there are many possibilities," he said. CSFB bankers and officials at Seaboard declined comment.
Both a CDO investor and CDO structurer described the Seaboard CLO as one of the cleanest and best performing deals around. "The performance of the deal has been very strong. I think [Sheppard] Davis and Brett Lashley [Seaboard's portfolio managers] have done a tremendous job," said the structurer. "Whoever inherits this will be inheriting a great portfolio. They are smart and savvy and do a ton of due diligence," he added.
One CDO banker described the move as perplexing. "No one has resorted to this level," he said of the reaction to FIN 46. He said some portfolio managers are looking at liquidating equity positions. "They want to sell them to continue to act as manager so they are not giving up control," he said. "But because there is not much liquidity in the secondary equity market, the positions are sold at a discount," the banker said. Compared to the potential cost of consolidation it is still worth it, especially for some of the regulated institutions, he added, citing potential capital costs and volatility to income statements.