The CDO new issue market has by no means dried up, with at least two (albeit small) arbitrage cashflow high-yield CBOs poised to print: the $275 million Seneca V (+43A/L AAA), via Salomon Smith Barney, and Pacific Investment Management Co.'s $200-$250 million San Joaquin (+42/L AAA), via Goldman Sachs.
Also, Credit Suisse First Boston has Ellington Management's Duke II, a $300 million ABS CDO lined up, and is talking the A-class notes at 50 basis points over three-month Libor, from informal discussions of +46-47, according to investor sources.
CIBC World Markets is also pushing ahead with Ark II, a $700 million distressed loan CLO managed by Patriarch Partners on behalf of CIBC as the originator, talked at +50 over Libor with an expected MBIA wrap (see Ark story p. 1).
Although several triple-A investors complain that the CDO market remains relatively quiet, and that even certain "household name" collateral manages can take five months to get their senior debt officially launched, the market has seen approximately $2 billion worth of USD arbitrage cashflow CDO paper visibly price since the Sept. 11 attacks.
Mass Mutual priced its $400 million CDO of CDOs (+50/L AAA) via JPMorgan, while Oak Hill Credit Partners priced its $600 million arbitrage CLO (+42/L AAA) via Deutsche Bank Alex. Brown. Deerfield Capital also priced a $300 million ABS CDO Mid-Ocean II (+50/L AAA), through Bear Stearns.
All of the above deals had been marketed heavily pre-Sept. 11 and likely had buyers in place that stuck with the deal. Oak Hill apparently had the smoothest marketing, partly due to the continued strong performance of cashflow CLOs from a credit standpoint, and tightening credit standards in the bank loan market. In fact, post-Sept. 11, CLOs (especially balance sheet deals) have proved the most liquid triple-A CDO product, trading at or near par, and only about five basis points wider over Libor in the secondary market, nearly the same widening seen in prime credit cards.
One effect of the new uncertainty in the general marketplace is that tiering of collateral managers will become even more prominent, especially at the equity level.
"A Trust Company of the West type collateral manager will continue to get deals done and quickly, but a first time issuer, or one with average performance against the major indexes might not get their deal done at all," noted one investor. These types of issuers often turn to monolines to help get investors comfortable, with full tranche wraps or even secondary wraps on an investor-by-investor basis. Still, the lower-rated liabilities and equity is increasingly difficult to place. Even with a guaranty some of these deals are in danger of not getting done, noted a source familiar with the monolines pipeline.