NY Life is in the process of marketing a $250 million collateralized debt obligation on the heels of a recently closed $330 million synthetic collateralized loan obligation, as the insurer looks to grow its CDO business. "We are a recent entrant into this market and this is our third transaction this year. We are focused on leveraging our resources and expertise in leveraged loans and other asset classes," said Tony Malloy, portfolio manager at the company, who expects the company to do more transactions next year. NY Life's first deal of the year used asset-backed securities as its collateral. NY Life acts as a manager as well as a less than 50% investor on its deals.
The latest structure will mostly comprise high-yield debt, but will also have a basket of leveraged loans in its collateral. The deal is a traditional cash flow arbitrage structure with the liabilities issued by Credit Suisse First Boston. Malloy referred questions regarding further details on the latest deal to Joe Heinz, manager, who declined to discuss a time line regarding completion of the deal. The company's synthetic deal utilized a commercial paper conduit to provide funding to buy up leveraged loans for the vehicle rather than issue bonds publicly, as is the case on the more traditional arbitrage structures. Malloy explained that underwriting fees associated with a bond deal are reduced with the commercial paper conduit. The structure then utilizes a total return swap with counterparty Swiss Re, which retains a majority of the senior tranche on the deal and portions of the subordinated tranches for LIBOR plus a spread.
Moody's Investors Service rated the latest structure. Market sources said price talk is 45 basis points over LIBOR on the $176 million tranche (Aaa), roughly 140 basis points over LIBOR on the $27 million tranche (A3), roughly 240 basis points over LIBOR on the $11.5 million tranche (Baa2), roughly 700 basis points over LIBOR on the $7 million tranche (Ba2). Heinz said price talk is only in this area and not yet definitive. The equity tranche is slated to be $28.5 million.