Aladdin Capital, a Stamford, Conn.-based boutique collateral manager, is expected to have a warehouse facility in place with the Japanese powerhouse firm, Mizuho Securities by mid-December, buyside sources said. The warehouse facility is said to be in preparation for a $400 million to $500 million arbitrage cashflow high-yield loan CDO, scheduled for a first quarter execution.
Meanwhile, Mizuho is said to be positioning itself as an active player in the U.S. dollar CDO business next year, although most of the senior transactors are based out of London, rating agency sources said.
Credit Suisse First Boston also has a trade in the pipe for Aladdin Capital, a $500 million, Financial Security Assurance-wrapped investment grade (IG) CBO that will have a 10% bucket for upper emerging market collateral, according to London buyside sources. The equity is understood to be placed, yielding about a 20% total return (assuming a 25 basis points in constant annual default rate (CADR) and a 48% recovery rate), sources noted. A fully ramped portfolio and pre-placed equity makes an early first quarter launch likely.
The transaction will have a traditional cash CDO capital structure with 90% triple-As, 3% single-As, 3% triple-Bs, and 4% equity, sources said. The weighted average maturity for high-yield CBOs with this typical structure is less than nine years. The current Moody's weighted average rating factor is understood to be less than 400. The trade will have a small 5% allowance for below IG bonds.
The 10% bucket for upper-tier emerging market collateral is said to include exposures in countries such as Chile, Hong Kong, Malaysia, Mexico, and Singapore.
The portfolio is said to predominately include household investment-grade names from the major industries, such as autos (i.e. Ford, GMAC, DaimlerChrysler), and issuer concentrations are limited to 2%.
Aladdin Capital, closed its first CDO in July via Banc of America Securities (BAS).