A handful of collateralized loan obligations are making the rounds and looking to take advantage of an improved market that had slowed to a crawl at the end of 2002. Insurance companies, foreign institutions and funds of funds seem to be picking up their checkbooks again, and that is coloring a healthier pipeline for CLOs and an increased demand for loan products, according to managers. There are between 10 to 15 deals in the pipeline, according to research by Christopher Flanagan, managing director and head, global structured finance research at J.P. Morgan.
Nomura Corporate Research and Asset Management is marketing notes for a $300 million deal called Clydesdale CLO 2003 and Katonah Capital Management is said to be close to pricing notes for the $350 million Katonah CLO IV. These join CLOs being marketed by a group that includes Oak Hill Advisors (LMW, 1/20), Stone Tower Capital (1/13) and deals from last year such as HarborView Asset Management's HarborView CLO V. A spokeswoman for Nomura confirmed the new deal, but declined further comment. Officials at Katonah confirmed its deal, but also declined comment.
A buysider suggested reasons for the apparent surge in volume. The pipeline in January is fairly robust due to a holdover from last year, she noted. "The fourth quarter pipeline was large, but liability spreads were too wide or the equity raising process took too long for many managers," she said. "A number of investors who buy CDO paper closed their books in December, but several managers wanted to complete deals."
The ensuing supply and demand imbalance led to higher spreads on the liabilities than would be expected, keeping several managers away from the market. Managers said that the cost of raising the debt has come in from last year, but it is still very manager specific. "There is a difference between first time and experienced managers with good track records,"a buysider said. The newer CLOs join a list that includes deals from the middle of last year. This still leaves the question of how many will get completed, said a manager, skeptical that all will clear the market even with improved demand.