Salomon Smith Barney is prepping its third trust-preferred capital securities collateralized debt obligation deal for October according to Street syndicate officials. Pricing should take place in late October with the deal closing in early November, they say. The targeted size for the deal is $500 million. TRUPS CDOs are backed by a pool of securities issued by U.S. commercial banks at the holding company level, and were initially structured and brought to market by SSB in September 2000.
The maturity of the CDO notes is 30 years. The bank debt within the TRUPS collateral pool is junior, ranking above the preferred stock of the bank. Unlike a traditional cash flow CDO, there is no collateral manager, but rather a static pool of securities issued by a predetermined number of banks. In the first deal, 29 banks issued collateral.
Another defining characteristic is the absence of a "ramping up" risk period, where the collateral manager has not finished buying all of the collateral after the closing date, perhaps forcing the manager to buy more costly collateral, and thus lowering the possible return.
On the closing date, each bank issues its TRUPS with the CDO simultaneously purchasing those assets on the same day. The notes will be rated triple-A and double-B, according to a market participant.