For the past few months, the CLO market has been quietly improving, with prices and performance tests looking up. However, the serenity ended late last week, when Texas Pacific Group said it would try to by assets in several collateralized vehicles for pennies on the dollar.

Now Citigroup, which owns $19.5 million in senior notes in the Tropic CDO V Ltd., a CDO containing assets TPG is trying to buy on the cheap, is attempting to block the private equity firm from what it calls an “improper” sale, according to Bloomberg.

TPG is trying to take advantage of a loophole in the way these CDO agreements were originally written by offering to take the riskiest assets off the holders' hands in exchange for millions of dollars in fees. TPG last week offered to buy $470.8 million of bank trust preferred securities from seven different CDOs for 5 cents on the dollar, including $115 million for assets in the Tropic CDO. TPG said it would pay holders of the Tropic CDO's equity portion $23.5 million in fees to allow the sale.

Citigroup says TPG’s purchase would cause “irreparable harm” to its stake in the vehicle. It also claims such a sale would allow TPG to cherry pick the best assets, which would erode senior lenders’ collateral.

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