The week leading up to the IMN conference saw only one CDO price as of Thursday, although the Credit Suisse First Boston "CDO sausage factory" (as one German investor client dubbed it) had its sights set at printing another structured finance CDO on Friday with joint-book runner Wachovia Securities: C-Bass CBO III Ltd. December and January are typically sloppy issuance and wide spread months for the CDO market and these past months were no exception. Much of January was spent by dealers getting reds into investors' hands for the mid-February full throttle push to climb the league tables.
For example, CSFB was slated to make certain investors got their reds herings by Friday on Barclays Capital Asset Management's $300 million arbitrage cashflow CLO, Venture CDO 2002 Ltd. This deal's marketing documents were absent any co-manager role from Barclays Capital, said one investor.
Last week saw JPMorgan price a $300 million approximate arbitrage cashflow leverage loan CDO for ING Capital Advisors, which was a rollover of an old "KZH" CLO ING Capital did with the lead several years ago.
JPM did a rollover of an old KZH deal into a cashflow CLO, wrapped by XL Capital Advisors, called Hamilton for Stanfield late last year. ING Capital's Endurance CLO priced its only visible tranche, the triple-As, at 45 basis points plus three-month Libor.
CSFB printed two deals last week: a $550 million arbitrage cashflow investment grade bond CDO for Aladdin Capital Asset Management and a $350 million SF CDO for Capital Re. Capital Re's deal pitched its preferred shares at a 20% internal rate of return, using a standard base default assumption, sources said.
Spreads on SF CDOs gapped out from the high 40s plus Libor on triple-As pre Sept. 11 to mid-50s and have yet to re-gain ground on the senior notes. Nevertheless, upper tier issuers such as Capital Re CR's Capital Guardian priced at +42/L with an MBIA wrap and +50/L unwrapped on the triple-As in mid-January - C-BASS and Fischer Francis Trees & Watts Inc. are making strides at coming close to circling deals at 50 basis points plus Libor area.
Investors are quick to ask for a premium for riskier assets in SF CDOs with large buckets of, say, mezzanine CDOs, manufactured housing, franchise loans, and small business loans. First Republic Trainer Wortham's second SF CDO printed at a discount margin of 63 basis points plus three-month Libor on the triple-As (A/L 8-years) and 400 basis points plus three-month Libor on the triple-Bs via Bear Stearns in late January.
Why the 11 basis point gap between the Trainer II SF CDO and the rest of the market? An investor looking at the portfolio said: "Trainer's deal has about 15% of high-octane assets. The 10% manufactured housing, 3% franchise, 2% small business loans are all sectors under pressure."
The triple-Bs on Trainer were also considerably wider than Trust Company of the West's South Coast SF/real estate CDO in December, 400 basis points plus three-month Libor on the triple-Bs versus +260, respectively.