To the dismay of several investors, Merrill Lynch brought the triple-A's on Franklin Templeton's $550 million arbitrage, cashflow CLO at a tight 41 basis over the three-month Libor. From the investor vantage point, the 9.1-year average life tranche was visibly the most expensive CLO print of the year.
The double-A notes were also expensive at 68 basis points over three-month Libor with a 12.1-year average life. One CLO investor, who buys from the mezzanine all the way down equity, quipped at the pricing: "Triple-As ought to be 20 basis points over Libor, there's no risk in these deals we're told."
Expected next week is the fairly predictable and prolific powerhouse CDO issuer Trust Company of the West with a $351 million high-yield CBO by way of Morgan Stanley. TCW High Income Partners Ltd. (HIP) is talking its triple-A notes at 43 basis points over three-months Libor. Not surprising for TCW interest in the triple-As has been strong and maybe come inside of guidance.
Goldman Sachs is reportedly pitching the equity tranche on All State Asset Investment Management Co.'s $400 million arbitrage, cashflow high-yield CLO at an 18.4 % return, with a base case of 2% defaults per annum, CDO sources said. The underlying portfolio is 85% secured leveraged loans and 15% bonds managed by sub-advisor Trust Company of the West. The deal is expected to have a rating factor of 2450 and a diversity score of 50.
David L. Babson's long awaited $400 million CDO secured by the asset manager's mezzanine CDO investments finally came out with early pre-marketing details last week. The JPMorgan-led trade will be an arbitrage, cashflow CDO and will have no assets rated less than Baa3/BBB' (Moody's/Fitch), noted sources. David L. Babson is a member of the MassMutual Group.
Meanwhile, Credit Suisse First Boston was showing equity and debt tranche investors PIMCO Asset Management's Pacific Coast. The triple-A's on the $500 million CDO 100% secured on a portfolio of asset-backed securities is said to be talked in the low 40s over three-month Libor (5.8-year A/L), which would be the tightest ABS CDO year-to-date. One portfolio manager, who turned down the trade, said PIMCO will probably finish at those levels due to its sterling name and the feeding frenzy for CDO paper from repeat issuers. Some veteran CDO investors are more bullish on ABS CDOs versus high-yield bond structures citing the strong performance of asset-backed securities as evidence by the rating agencies transition matrix's. So far, C-Bass II is the tightest ABS CDO this year at 47 basis points over three-month Libor, also from CSFB.