Goldman Sachs has priced the notes for Flagship Capital Management's second collateralized loan obligation, a $400 million cash-flow arbitrage vehicle composed of Ba3/B1 loans. The vehicle, known as Flagship CLO-II, came to market now due to a combination of factors, according to a market official. "The warehoused assets are at a size where it becomes economical to price the notes," the official said, noting that the assets are now about 70% funded. It was unattractive to increase the size of warehoused assets during the summer as spreads were so tight, he explained. The equity for the deal was obtained several months ago due, in part, to a reverse inquiry from investors in Flagship's first deal, he pointed out. Flagship officials declined to comment on the vehicle, and bankers at Goldman did not return calls.
The notes priced well within expected ranges, the official noted. "It's a difficult market, and Goldman did a good job," he added. The $275 million in triple-A notes were priced at LIBOR plus 50 basis points, another source said, pointing out that the pricing is inside of some recent deals. The $32 million double-A tranche was priced at LIBOR plus 100 basis points, and the $15 million single-A tranche was priced at LIBOR plus 150 basis points.
An $8.75 million triple-B tranche was priced at LIBOR plus 260 basis points, a second $9.65 million triple-B piece was priced at LIBOR plus 228 basis points but was sold at 97.5 and a third $16.6 million triple-B tranche was priced at a fixed rate of 730 basis points. The official pointed out that the all-in yield is the same on the three triple-B tranches, but some investors wanted a fixed rate, others preferred to buy at par with a higher coupon and still others wanted a discount and a lower coupon. Finally, a $10 million double-B tranche was priced at LIBOR plus 775 basis points and was sold at 97.7.
Flagship is the loan investment subsidiary of FleetBoston Financial and is headed up by loan veteran Ty Anderson. Founded two years ago, the firm is a consistent investor in the leveraged loan market and already has completed Flagship CLO 2001-1 (LMW, 8/26). Although the second portfolio still needs to be completed, Flagship is expected to begin marketing another CLO shortly, the source said. Anderson declined to comment.