Octagon Credit Investors is warehousing assets for a $375 million collateralized debt obligation that is expected to close in the next month. A source close to the deal said the manager has been in the market ramping up the vehicle, which will invest 80% in loans and 20% in high-yield bonds. Officials at Octagon declined to comment. The fund is reportedly investing most actively in defensive sectors, such as healthcare, food, and cable.
As first reported on LMW's Web site last week, the CDO is a cash flow vehicle and co-lead underwriters First Union and TD Securities have already priced the notes. Equity investors could not be determined by press time. The Aaa-rated tranche is priced at 43 basis points over LIBOR, the Aa3-rated tranche at 73 basis points over LIBOR, the Baa2-rated tranche at 210 basis points over LIBOR and the Ba2-rated tranche at LIBOR plus 610 basis points. Officials at First Union and TD Securities did not return calls by press time. State Street Global Advisors will act as trustee for the vehicle.
The source noted Octagon tapped the market due to more favorable arbitrage between loan asset spreads and liability funding compared to this time last year. "You're able to price liabilities at a favorable rate and loan assets have more favorable spreads than they did a year ago--if you can find them," said the buysider, explaining that the most difficult part of getting a CLO done in today's market is that players are all trying to pile into a select number of deals viewed as solid credits. Octagon's last CDO was done in 1999 and was roughly $1 billion, a deal size that would be difficult to get done now given the competition for assets, he said.