CLOs to end 12-month drought in Citigroup deal
Thursday, 18 March 2010
NEW YORK, Mar 17 (Bloomberg): The market for collateralised debt obligations backed by high-yield, high-risk loans is poised to open in the US for the first time in a year after losses on mortgages prompted investors to flee bundled securities.
Citigroup Inc is underwriting a $500 million fund managed by New York-based WCAS Fraser Sullivan Investment Management LLC, scheduled to price as soon as this week, according to people familiar with the offering who declined to be identified because terms are private. The deal refinances an existing collateralised loan obligation and increases its size by more than 50 per cent.
The offering would mark the first new issue backed by widely syndicated loans in the $440 billion market for CLOs since last March and a return to investments that contributed to $1.76 trillion of writedowns and credit losses at the world's largest financial institutions. Citigroup and WCAS Fraser Sullivan are marketing the deal after prices on CLO debt staged a record rally on signs of economic recovery.
"This is the first baby step to getting the market going again," said Matt Natcharian, head of Babson Capital Management LLC's structured credit team in Springfield, Massachusetts. "There is a decent amount of investor interest throughout the capital structure and there are managers that want to do deals."
JPMorgan Chase & Co, Bank of America Corp and Deutsche Bank AG have also been approaching managers of leveraged loans since last year to offer terms for new CLOs, according to people familiar with the discussions.
CLOs pool loans and slice them into securities of varying risk intended to provide higher returns than similarly-rated investments.
Prices on the highest-rated portions of CLOs have climbed to 90.5 cents on the dollar from a record low of 69 cents in April, according to Morgan Stanley data.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt fell Monday to 157 basis points, or 1.57 percentage point, the lowest this year, from as much as 174 basis points Jan 4, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.015 per cent.
Citigroup Inc is underwriting a $500 million fund managed by New York-based WCAS Fraser Sullivan Investment Management LLC, scheduled to price as soon as this week, according to people familiar with the offering who declined to be identified because terms are private. The deal refinances an existing collateralised loan obligation and increases its size by more than 50 per cent.
The offering would mark the first new issue backed by widely syndicated loans in the $440 billion market for CLOs since last March and a return to investments that contributed to $1.76 trillion of writedowns and credit losses at the world's largest financial institutions. Citigroup and WCAS Fraser Sullivan are marketing the deal after prices on CLO debt staged a record rally on signs of economic recovery.
"This is the first baby step to getting the market going again," said Matt Natcharian, head of Babson Capital Management LLC's structured credit team in Springfield, Massachusetts. "There is a decent amount of investor interest throughout the capital structure and there are managers that want to do deals."
JPMorgan Chase & Co, Bank of America Corp and Deutsche Bank AG have also been approaching managers of leveraged loans since last year to offer terms for new CLOs, according to people familiar with the discussions.
CLOs pool loans and slice them into securities of varying risk intended to provide higher returns than similarly-rated investments.
Prices on the highest-rated portions of CLOs have climbed to 90.5 cents on the dollar from a record low of 69 cents in April, according to Morgan Stanley data.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt fell Monday to 157 basis points, or 1.57 percentage point, the lowest this year, from as much as 174 basis points Jan 4, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.015 per cent.