Four Corners Capital Management, the asset management company headed by loan veteran Michael McAdams, is preparing to price the notes for its debut $400 million collateralized loan obligation, called Mondrian CDO I, after a lengthy period in the pipeline. "We started warehousing in March, and we expect to price in the next 10 days," McAdams told Loan Market Week late last week. Four Corners has purchased about $150 million in assets for the vehicle, which will consist completely of leveraged loans, and is set to buy the balance once the notes are priced.
Some rival portfolio managers highlighted the length of time the vehicle has been marketed. "CIBC [World Markets] has been warehousing this for a long time," one portfolio manager said. "He knows more people than most asset managers, so why were investors not putting money into it?" McAdams, president and chief investment officer of Four Corners, explained that not only are there 50% fewer CDOs being done than last year, the average marketing life for deals this year is now six to eight months, up from two to four months. He added that some of the issues that made raising mezzanine and equity tranches harder are the circumstances surrounding Enron, Adelphia Communications and WorldCom.
McAdams is confident that market forces are now working in Four Corners' favor. "There is pretty decent risk-adjusted spreads," he said. "No bank wants to be doing the next WorldCom, and the level of scrutiny on deals is as great as it has been." Referencing a recent Merrill Lynch report, "CLOs: What a Difference a Few Months Make!", he also pointed out that spreads on loans have gone from LIBOR plus 3% one month ago to LIBOR plus 33/ 4%, near historically high levels.
McAdams sees no problem in buying assets. "It does not take very much," he said. "We don't have $5 billion in assets to maintain." He declined to comment on price talk and the potential structure of the vehicle, except to say pricing will be commensurate with the experience level of the people at the firm. Four Corners is staffed primarily with ex-ING Capital Advisors people, with most individuals having been involved in at least 14 deals.