Prudential Capital Group is in the market warehousing assets for its first collateralized debt obligation backed primarily by leveraged loans. The $400 million deal, called Dryden Leveraged Loan CDO 2002, has been executed in response to a favorable funding gap between pricing on liabilities and pricing on loan assets, said an official at Prudential. "We manage other CDO vehicles but this is the first loan transaction," he said, explaining that the firm has been managing loans since the 1980s for its general account and it will use this deal to utilize the asset class for a structured vehicle.
Leveraged loans will comprise 75-80% of the deal with high yield bonds making up the remainder. In response to challenges managers are facing in their hunt for available assets, he said, "Primary activity is not overwhelming but sufficient and this vehicle takes priority over the general account so it will be the first to tap new issue." The firm is in the equity marketing phase right now and it is also in price talk discussions with debt investors. The bonds to back the deal are expected to price in mid-May with the expectation that the deal will close a couple of weeks after issuance. Salomon Smith Barney and TD Securities will underwrite the bonds. "Because it's our first loan transaction we wanted to be able to tap Canada to be sure of good execution," he said regarding the dual underwriters. The firm currently manages a CDO whereby loans represent 25% of the underlying assets.