Salomon Smith Barney has done it again, pricing a CDO from a manager that has had previous deals see ratings volatility, at levels that are in line with the asset manager's peers.
Conseco Capital Management, which has had three of its ML series high-yield CBOs in the 1997-1998 vintage witness rating volatility, priced a fresh $350 million investment grade average CDO at the tight-end of revised price talk. Ascension High Grade CDO Ltd. printed its seven-year triple-A notes to yield 41 basis points over six-month Libor (par).
In early July, Salomon surprised several market participants with the tight levels Highland Capital's $503 million CLO came at, despite the manager having its ML CBO IV 1996-PM-1 on ratings watch from S&P and unconfirmed market chatter of Highland (formerly Pamco) managing the deal to satisfy equity holders first.
In addition to Salomon's conservative structuring and impressive distribution channels, CDO pundits said that the deal had other key benefits. For one, several new structured investment vehicles (SIVs) are ramping-up. Also, the deal is an investment-grade average CDO, which investors are beginning to favor over high-yield bond to a degree.
Further, management fees on Ascension are reportedly 100% subordinate to the debt tranches. The management fees are also subordinate to the cash on a cash return of the equity. Also, the trade has a reinvestment trigger at the senior tranche level, that if tripped will diverst 50% of the cashflow from the equity and subordinate management fees to purchase new collateral, rebuilding par value. The reinvestment trigger would occur prior to an early amoritzation, giving the deal a second chance.
Meanwhile, Deutsche Bank priced a cashflow ABS CDO called Arroyo, for Western Asset Management Co., an affiliate of Legg Mason. Arroyo priced at +47 on the triple-A notes and was DBAB's first visible ABS CDO execution.
Also on the structured finance-backed CDO front, First Union is expected to price GMACCM's CREST G-STAR 2001-1, a $500 million cashflow REIT/CMBS CDO.
Pareto Partners is expected to price its second high-yield CBO, which includes XL-Capital's first surety bond for a CDO. XL Capital owns 30% of Pareto.
Flagstone has a few unique features that investors need to get comfortable with, including the performance of Flagstone's first high-yield CBO and the value of the untested XL surety bond, noted one portfolio manager analyzing the deal. The investor complimented Bear Stearns for a tight structure that uses a recovery assumption that is five cents (25 cents on the dollar) more conservative than the typical U.S. high-yield CBO now on the Street.