AIG Global Investment Corp. is prepping a collateralized debt obligation backed by private equity partnerships. The $1 billion deal, underwritten by Morgan Stanley, will be AIG's first collateralized fund obligation and is set to close this month. Jon Strain, head of the CDO syndicate at Morgan Stanley, did not return a call, nor did David Pinkerton, the AIG portfolio manager in charge of the ramp-up of this deal.
A CDO market participant says that the deal is a balance sheet transaction in which AIG is writing off its books 65 private equity funds in which it has invested. In total, AIG is securitizing $1 billion out of its $5 billion private equity portfolio. One motivation for the structure, in addition to balance sheet relief, is liquidity as the use of CDO technology allows managers to generate cash from a portfolio of very illiquid assets, says this market participant. Morgan Stanley will only sell $250 million of the triple-A rated tranches, he adds. The $750 million remaining portion of mezzanine debt and equity will be retained by AIG.