London-based ING Capital Advisors is ramping up a EURO350 million collateralized loan obligation in an effort to tap a burgeoning European CDO market. Michael Campbell, senior portfolio manager at ING, said the company is trying to position itself as an "early pusher" in the market. "On the institutional side, Europe is in the embryonic stages," he said. At the Standard & Poor's CBO/CDO Conference in New York last Tuesday, Campbell said the company is in the process of finding assets for the vehicle. ING will be launching a debt road show in the next couple of weeks with London-based Goldman Sachs acting as lead underwriter and equity investor. The majority of the CDO will comprise loans with smaller bond and mezzanine debt components.
Lynn Hopton, senior managing director of American Express Asset Management, explained that domestically her company has raised roughly $1.8 billion in the last 12 months to ramp up two CLOs, two CBOs, and a CBO of CBOs in response to an environment where spreads have been historically wide and credit quality continues to improve. But the dearth of new issue volume has forced Hopton along with Campbell at ING to buy more actively in the secondary market. "We ramped up a $500 million CLO solely in the secondary," said Hopton, in response to fresh issue decline. ING has also increased its secondary market buying for two new domestic CLOs completed in the last 12 months."The debt markets still see this as a very attractive product," said Hopton optimistically, noting, however, that the biggest questions investors are asking include: What do you think recoveries will be? Where do you think defaults are going? In response, Hopton said portfolios are significantly more risky than they were in 1998 and she thinks the market's in the middle of the default cycle. "The peak is yet to come," she predicted. Campbell, separated telecom out, "Everything non-telecom is towards the second half of the default cycle. But one exception--telecom--is early in the cycle."