Lord Abbett originated its first collateralized debt obligation transaction--a $179 million deal likely to close next week, says a CDO market official. Called Golden Night CBO, the deal, underwritten by Merrill Lynch, is only the third high-yield CDO to have been priced this year following Salomon Smith Barney's Newton CDO, which was priced in the first quarter, and Bear Stearns' Silver Lake Funding, which was priced three weeks ago. CDO structurers say conditions for high-yield arbitrage are better in the past two months with high-yield bond spreads widening. Yet, they add, finding investors remains challenging. This official says Golden Night was first marketed in early July with a $300-400 million target size. Due to the challenge of finding mezzanine and equity investors in deals backed by high-yield collateral, the deal was downsized to $179 million, he says. Scott Bohner, CDO director at Merrill Lynch, declined to comment. Chris Towle, portfolio manager at Lord Abbett, did not return calls by press time.
The triple-A notes were priced at 60 basis points over LIBOR or five basis points wider than the recent Bear Stearns deal. The triple-B notes were priced at 290 basis over LIBOR, tighter by 60 basis points than the equivalent Bear Stearns tranche.