After an August when even reputable managers were seen selling bonds as wide as 60 basis points over Libor, of late it has been somewhat rare for a new issue CDO to clear all of its bonds, CDO insiders report. But it appears the $300 million Saratoga arbitrage cashflow CLO from Denver-based Invesco has done just that - with modest oversubscription on almost all classes via lead manager Lehman Brothers.

Saratoga's 46 basis point spread over six-month Libor for the 8.1-year A/L seniors sets an encouraging benchmark for other CDO issuers and less seasoned managers are now marketing triple-A's one to two basis points in back of Invesco. The only tranche not reportedly oversold - the $6.75 million 10.3-year A/L double-B rated D class, cleared at 97.0 with a discount margin of 800 basis points over three-month Libor.

Helping Saratoga clear at the same levels as Lehman's Ares VI CLO mandate on the triple-A, single-A and triple-B's was a manager with stellar performance with nearly a dozen CDOs integrated within its portfolio management systems and an institutionalized approach to managing CLOs, investors said. Part of Invesco's CLO strategy is to not over-engineer its structures, leaving a greater cushion in the overcollateralization tests and thereby allowing more flexibility in the management of the portfolio. For example, the class A O/C test is set at a 115.5% trigger versus a 128.1% expected level.

Also, at 10%, the deal had about 2% more equity than the average CLO, giving 10-times leverage versus the typical 12.5-times seen with leveraged CLOs. Most of the equity in Saratoga was sold on a reverse inquiry basis in Asia, according to unconfirmed market reports.

In addition, helping Saratoga's pricing was a deal backed 100% by senior secured loans. Investors are partial to 100% loan deals since they leave less room for the moral hazard of a manager holding on to high-yield positions with low recoveries in order to maintain higher equity returns.

The issuer and underwriter could not be reached for comment.

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