Private equity firm Clearwater Capital Partners last week launched the first publicly rated CLO backed by Asia ex-Japan distressed debt. The offering was small, at only $146 million, but it signifies the growth many say is overdue in the Asian credit markets outside of Japan.
While there is still a yield premium to such deals, they are becoming increasingly correlated to corporates both in Europe and the U.S., sources said, as ex-Japan Asia markets develop a higher level of sophistication.
A number of CDO market participants cite the extension of CDO technology to the Asia-Pacific rim as a huge growth potential this year, with a significant amount of debt waiting to be securitized.
"People don't understand the scale of the Asian corporate debt markets," said Robert Petty, a managing partner at Clearwater, which manages roughly $1 billion in Asian credit. Clearwater is pursuing further securitization potential, and CLOs will "hopefully be a growing component of that," Petty said.
Clearwater issued six classes of rated notes maturing February 2014 out of Singapore. The portfolio is backed by 28 high yield corporate loans and six corporate high yield bonds stemming from 24 borrowers. All of the underlying assets, mainly senior high yield loans issued by Asian corporations, were U.S. dollar denominated.
The deal, arranged by Merrill Lynch and structured with a static portfolio, carried ratings by Moody's Investors Service and Fitch Ratings. The Bank of New York served as trustee. Clearwater retained the $59 million equity piece. The $40.8 million Class A triple-A tranche of the deal priced at 40 basis points over three-month Libor, while the $5.8 million, triple-B rated Class D priced at an even 300 basis points over.
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