It was a year of increased stability in terms of credit ratings for CDO market and subsequently, investors that previously exited the product returned in strong numbers in 2004. Thanks to the asset class' yieldlier environment - compared to comparable fixed-income products - hedge funds set up shop in the CDO market in noticeable numbers.
Thus, increased competition among buysiders took the chase for collateral to the secondary market, which enjoyed a banner year by all accounts. Yet the primary topics of conversation by market participants was the overall tight spread environment and the seeming lack of new collateral in the new-issue CDO market, areas ASR's award-winning deals of the year addressed, thereby solidifying their names in the 2004 record book.
Brascan Real Estate CDO 2004-1 led via joint lead managers Goldman Sachs and Wachovia Securities was selected as the CDO deal of the year, due to its collateral innovation. Brascan Real Estate CDO, a $301 million deal managed by Brascan Real Estate Financial Partners, was the first ever CDO to harness subordinate CMBS collateral ramped specifically for this purpose. It priced in early November, at amazingly tight spreads, and was one of just three single-B note CDOs issued in 2004.
Harnessing the power of a mix of B-level commercial mortgage-backed securities, the Brascan CDO achieved ratings on all tranches from Moody's Investors Service and Standard & Poor's, from triple-A down to triple-B minus level.
Four of the five rated tranches had a weighted average life of six years. The CDO's top tranche, at $191.1 million in size with a 5.9-year average life, rated triple-A by both Moody's and S&P, priced at three-month Libor plus 35 basis points. Consequently, the $32.3 million double-A rated B tranche, with a six-year WAL, priced at three-month Libor plus 55 basis points, tightening from price talk of 60 to 65 basis points over Libor.
The CDO achieved an advance rate of nearly 90%, on an actively managed collateral pool consisting primarily of senior B-notes with a 1018 weighted average rating factor. According to Wachovia, the all-in cost of funding was Libor plus 58 basis points, excluding fees.
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