Last week, JPMorgan Securities priced Sankaty Advisor's $400 million cashflow CLO at 48 basis points over three-month Libor on the triple-As (7.2-year average life). While the ABS CDO bid is said to be holding - and CLOs have generally shown impressive performance - dealers are finding very long execution periods ahead of them, with few deals pricing and a growing pipeline.
Credit Suisse First Boston's CDO Market Watch Weekly counts 53 U.S. dollar CDOs in the pipeline, many stuck in debt marketing.
Sources say both equity and debt are difficult to place, but the senior part of the capital structure is becoming a serious problem - double-A and triple-A tranches in particular. Conduits are apparently pulling back from investing in the CDO market partly due to the difficulty in finding economical monoline wraps in the secondary market. The monoline fees for wraps are understood to be on the rise.
Boston-based Bain Capital's Sankaty Advisors is a strong manager that undoubtedly made things easier for JPM. The portfolio will be approximately 80% ramped at closing and the remaining will be accumulated over a six month ramp-up period.
INGOTS, the structure used in Sankaty's deal, is said to be JPM's new generation of its proprietary Sequils CLO structure that has been emulated by several competing underwriters. One unique feature in the INGOTS structure is an approximate $25 million credit facility with the bank. Under the structure the transaction benefits from a credit facility provided by JPMorgan to inject liquidity to the structure to cover for defaulted assets and/or credit impaired sales.