Coast Asset Management is prepping Coast Senior Debt Opportunities, a $500 million collateralized debt obligation backed by CDOs, says a CDO market participant. The Santa Monica, Calif.-based asset manager has three CDOs of CDOs outstanding. It has originated one deal every year since 2000. The new deal, underwritten by CIBC World Markets, is expected to price in the second quarter. Calls to Ken Wormser, managing director and head of asset securitization at CIBC, and to Jason Golush, director of CDO investments at Coast Asset Management, were not returned.
The collateral pool consists of 80-90% senior CDO tranches and 10-20% mezzanine CDO notes. The mix may allow for a 5-10% bucket of asset-backed securities before close, says this market participant, which is not unusual. He says managers may introduce ABS buckets as a way to accelerate ramp-up considering the scarcity of CDO collateral in this highly illiquid secondary market. He also notes that the market is seeing an increased proportion of senior tranches versus mezzanine in the backing of CDOs of CDOs. The reason for this trend, he says, is because the senior notes have seen their spreads widen over the past six months due to downgrades. Although senior, they may trade at more distressed levels, in the 70 cents on a dollar range as of last week versus 90 cents a few months back, he says.