Commercial loan provider CapitalSource has priced its most flexible ABS transaction to date, a $1.5 billion revolving cash flow CLO.
Backed by mainly senior secured commercial loans, plus subordinate middle-market loans, the CapitalSource Commercial Loan Trust 2006-2 closed last Thursday. Citigroup Capital Markets and Wachovia Securities were joint leads on the transaction.
For the first time since CapitalSource began securitizing its commercial loans in 2002, the deal featured a three-year collateral replenishment period. The replenishment period essentially extends the life of the offered notes, allowing the deal structure to remain as is for a longer period, said Alla Zaydman, a director in Fitch Ratings' CDO group. Such a move also allows CapitalSource to attract investors who might prefer to buy notes with longer durations. Triple-A rated securitized notes in previous CapitalSource transactions would pay down in a matter of 18 to 24 months, because they were the largest part of the capital structure and so would be the fastest notes to de-lever, said Zaydman.
Executed as a 144a offering, the transaction offered notes totaling $1.3 billion, or 88% of the collateral pool. CapitalSource retained the other 11.5% of the pool. Excluding fees, the deal achieved a blended pricing of 39.4 basis points over the one-month Libor, compared to a blended pricing of 25.3 points over the same benchmark for its series 2006-1 deal, which priced in April, the company said. CapitalSource said it will use the proceeds from series 2006-2 to repay borrowings from some of its credit facilities.
Based in Chevy Chase, Md., CapitalSource is a REIT that specializes in offering first mortgage, asset-based, cash flow and mezzanine financing to small and mid-sized borrowers. All of the company's loans are either secured by assets or by an enterprise value proven to withstand all market conditions. It targets businesses with $15 million to $500 million in annual revenues, and its loan sizes typically range from $1 million to $50 million.
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