Bear Stearns Asset Management is in the final stages of ramping up a $402 million collateralized loan obligation called Gallatin Funding 1. According to officials familiar with the vehicle, the collateral is at least 90% ramped-up. Calls to Bear Stearns were referred to a spokeswoman, who did not return calls.
The CLO uses two simultaneous credit-enhancement techniques that previously had not been used by Bear Stearns, noted Michael Gerity, a director atFitch Ratings. The synthetic equity for Gallatin is provided in the form of a credit swap with Bear Stearns Capital Markets (BSCM), which simultaneously entered into a credit swap with Credit Linked Asset Securities (CLAwS), a special-purpose vehicle capitalized with $67 million of floating-rate notes. The CLAwS structure provides a hedge to BSCM in the event of defaults, Gerity said, adding that the risk is passed to investors that buy the notes.
Bear Stearns underwrote the CLO, which consists of $381 million in AAA notes priced at LIBOR plus 45 basis points. The other tranches consist of double- and single-A notes. Bear Stearns already manages a $404 million CLO and a total of $2.4 billion in structured vehicles.