CDOs/CLOs

Goldman Sachs, its image tarnished by a new subprime-related legal action brought by the government, on Monday made additional comments on the case, including a revelation that it too lost money on the CDO transaction in question.

The CDO at the center of the fraud case against Goldman Sachs is known as ABACUS 2007-AC1, and a class of its debt was cut to 'D' from 'CCC-' by Standard Poor’s in May 2009.

Two weeks after Citigroup priced a $525 million CLO and a week after Orix, Apollo and GSO Blackstone all started arranging their own CLOs, Bank of America Merrill Lynch has begun arranging a $500 million CLO.

The Securities and Exchange Commission (SEC) has charged Goldman Sachs and one of its vice presidents for defrauding investors by misstating and omitting key facts about a synthetic CDO backed by subprime mortgages.

Good things, it seems come in threes, with three new CLOs in the works. Orix, Apollo Management and GSO Blackstone are arranging the three CLOs, sources said.

Investors selected Prudential Fixed Income to serve as replacement manager for two CLOs: GSC European CDO III SA and GSC European CDO IV SA.

European public CLO issuance has declined to virtually zero from more than €80 billion ($108 billion) in 2007 and Unicredit analysts said there is no progress by way of revitalizing issuance.

Citigroup has priced a $525 million CLO, upsized from $500 million, that will be managed by an affiliate of WCAS Fraser Sullivan Investment Management.

According to Fitch Ratings, 32 corporate synthetic CDO tranches will default following the recent ISDA ruling which called a credit event on Ambac Assurance Corporation.

While the CLO market still struggles to get back on its feet, the bank loan retail mutual fund market appears to be off and running.