Triton Partners is marketing a $300 million collateralized debt obligation backed by other CDOs. Triton CDO Opportunities I is the first CDO of CDOs for the manager and it comes as the market for such vehicles is heating up, according to BondWeek, an LMW sister publication. The deal will be lead managed by Morgan Stanley andTD Securities in New York, according to market sources. Word in the market is that the equity tranche, which represents the most challenging part of the deal to sell and only 6% of total liabilities, has already been sold and marketers are in the final stage of selling the debt to the more conservative debt investors.
The deal is Triton's fifth CDO, but its first backed by CDO collateral. So far, the firm has $1.4 billion in CDO assets under management. Market sources expect the deal to close in the next several weeks. Triton officials declined to comment and calls to Morgan Stanley were not returned.
The deal comes to market at a time where secondary CDO traders have a huge appetite for CDOs of CDOs. Trading is active and liquidity is increasing, even though for technical reasons their spreads remain slightly wider than their high-yield CDOs counterparts. The exuberance for the instruments was underscored last week in comments made at a CDO Summit held last week in New York organized by the Institute For International Research. "CDOs of CDOs are the greatest thing. It helps everybody. We can turn it around in a few hours. We love this market right now," said Ross Heller, a CDO trader at J.P. Morgan. Alex Reyfman, v.p. credit derivatives strategies at Goldman Sachs, noted that investors that buy CDOs of CDOs are sophisticated enough and predicted that a secondary market will develop.
The vehicles are popular and liquid, but right now their spreads are wider than typical CDOs. Fred Horton, managing director at Trust Company of The West, one of the most widely established buysiders in the U.S. CDO market, at the same conference asked why the CDOs of CDOs trade at wider spreads if they are so popular. Helen Remeza, CDO research analyst at Credit Suisse First Boston, noted that investors are willing to pay a premium due to the novelty of the instruments. Most analysts agreed. Traders generally assess that on a triple-A rated tranche the premium is usually five basis points. A portfolio manager said triple-A rated notes of CDOs of CDOs are trading at 45 to 50 basis points over LIBOR while their equivalent tranches in the high-yield CDO market trade at 40 to 45 basis points over LIBOR. For investment-grade CDOs, the spread also remain tighter with levels at 42 to 45 basis points over LIBOR.