OppenheimerFunds subsidiary HarbourView Asset Management and Merrill Lynch Investment Management are shopping for assets for two new collateralized loan obligations, as both firms try and chalk up their second deal in a year. Both firms are tapping the market at an opportune moment, one portfolio manager stated, explaining that spreads on notes being issued to fund the transactions are rising but the underlying asset spreads also are widening considerably. The Merrill Lynch deal is a $328 million cash-flow arbitrage transaction called LongHorn CDO III, said a banker. Merrill closed on LongHorn CDO II, a $350 million vehicle, in February. The approximately $300 million HarborView vehicle, underwritten by Salomon Smith Barney, will be the firm's fifth CDO and it follows hot on the heels of HarbourView CLO IV, a $350 million vehicle that closed in January.
Merrill Lynch led the notes for LongHorn CDO II and also is leading the notes for LongHorn CDO III, a banker said. The tranches reportedly are structured as a $265.5 million "A-1" piece, a $24 million "B" tranche, a $22 million "C" tranche, a $4.5 million "D-1" piece, a $6.3 million "D-2" piece and a $6 million "E" piece. Officials at Merrill's investment shop and the underwriting division did not return calls.
The structure for the HarborView vehicle and timing of the notes could not be ascertained. William Jaume, senior v.p. at Harborview, declined to comment, citing the 144A nature of the transaction. A Salomon banker also opted not to comment.
Loan spreads on double-B names are now LIBOR plus 367 basis points for the last month, according to PMD data. This contrasts with LIBOR plus 269 basis points in the second quarter. Furthermore, average upfront fees reached an all-time high of 108 basis points in September. Despite the potentially healthy funding gap, the pipeline for CLOs remains muted. Analysts have repeatedly placed the blame on raising equity.