Coming off the holiday-shortened week, investors were greeted in early December with an investment-grade synthetic CDO that Banc of America Securities began marketing last week.
According to buyside sources, BofA is showing investors Westmoreland Capital Management's Westmoreland CDO 2002-1, a deal referencing a $1 billion portfolio of investment grade credit accumulated from the credit default swap market. It will target a broad range of industries and a large number of individual credits, all acquired in the open market.
Maturities for the seven tranche deal range from five to six years. Just over 90% of this vehicle is comprised of triple-A rated Super Senior notes, carrying a 0.15% coupon. Triple-A rated Class A notes are being marketed at Libor plus 65; Class B notes, rated Aa2/AA, are at Libor plus 100; Class C notes, rated A2/A-, are at Libor plus 200; Class D notes, rated Baa2/BBB, are at Libor plus 400%; Class E notes, rated Ba2/BB, are at Libor plus 900. Unrated Preference Shares will capture the residual and comprise 2% of the vehicle's makeup.
The credit default swap market, according to one source, isolates credit risk and return, providing an opportunity to leverage an investment grade portfolio. The CDO does not have any interest rate or market value triggers. Furthermore, returns to CDO noteholders will be higher than comparably rated asset-backed securities.