The second CDO from Texas-based hedge fund manager HBK Investments priced to yield the tightest visible print on a senior triple-A structured finance CDO class to date at 27 basis points over three-month Libor, sources said.

The $450 million mezzanine grade offering, dubbed Gemstone, recently priced via lead underwriter Lehman Brothers and is slated to settle in early December. The deal is comprised of 20% ABS and 80% RMBS collateral.

"[The firm] views this as a financing trade as we invest in the same types of securities in our own portfolio and hold a lot of the same bonds on our books as well," said HBK Senior Portfolio Manager Kevin Jenks.

The transaction is structured similarly to the firm's inaugural $307.3 million Sandstone transaction, which priced in June via lead underwriter Deutsche Bank Securities. The collateral sector breakdown was identical. However, there was a higher concentration of lower rated bonds in Gemstone, sources said. HBK retained 100% of the equity in both transactions. As collateral manager, the firm will collect a management fee of 20 basis points per year on the Gemstone transaction. The fee is relatively small compared to that of most CDO managers as HBK derives most of its returns from its investment in the equity portion of the deal, sources said.

The fund is expected to be a regular issuer going forward, and plans to tap the market between two and four times annually. The next transaction will likely be completed in the first quarter of 2005, sources said.

HBK launched in October 1991 with $30 million of initial capital and four original limited partners. The firm currently manages roughly $5 billion in equity capital.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.