A flurry of CDOs priced during the last few days of March and the first few days of April, for about $9.5 billion in proceeds in a single Monday-to-Friday period - a tally that includes one rather massive euro-denominated deal.
Still, who ever heard of a $10 billion week in CDOs?
By ASR's count, that's nearly one-quarter of the visible U.S. and European market so far this year. Some speculate that bankers were trying to polish off deals by the quarter-end league table close on March 31, though the majority of the pricings actually hit the first and second day of April (see chart, p. 11).
"There's always a push to wrap things up by the end of the quarter, but there was certainly a pipeline," said David Czerniecki, a senior managing director at XLCA, which wrapped, at the secondary level, five recently issued CDOs during the first quarter. "A lot of that volume is being replaced in the pipeline. It doesn't seem to be abating."
For the replenishing pipeline, Czerniecki noted wider spreads in mezzanine ABS, which benefits SF CDOs, and an uptick in M&A activity, which leads to loan origination - both factors driving the pipeline. And of course: "Spreads on the liability side have come in noticeably, which has caused some people to pounce on the opportunity," Czerniecki added.
In addition to the $3.3 billion Chrome Funding, a massive synthetic balance sheet deal referencing European ABS/CDOs from CDC IXIS, the market saw its regular variety of asset classes including cash SF deals, high yield loan deals, investment grade loans deals, and TruPS. The largest arbitrage cashflow deal from the March 29 week was the $1.5 billion Lakeside Funding CDO II via Merrill Lynch.
The session also saw a third issuance of liquidity funding notes from William Street Funding Corp., a Goldman Sachs structured vehicle.
About this time last year, Goldman issued the first two William Street series, which stirred up the Thomson Financial league tables as it gave Goldman an instant No. 1 standing with $3 billion in proceeds - the firm's only deal at that point in the year. It also fueled the debate over CDO categorization in league tables, and whether balance sheet deals should be separated into their own category.
This year's William Street 2004-1/2 is less substantial in size, at $825 million, structured as two triple-A floating-rate classes, with the four-year pricing 35 basis points over three-month Libor, and the five-year at 40 over three-month Libor. The prior William Street 2003-3 priced a five-year class in November at 48 over three-month Libor.
Goldman's vehicle is backed by loan commitment facilities with investment-grade corporate borrowers. According to a Moody's Investors Service write-up on the first series, the proceeds are invested in high quality short-term securities. A separate vehicle, called Commitment Corp., provides the lines of credit, and draws upon William if the underlying borrowers draw on their facilities. The fees associated with the lines of credit flow into William. The structure permits Commitment Corp. to build a portfolio of commitments that is more than double the notional amount issued by William.
A different set of banks
Meanwhile, the quarter-end CDO league tables told an interesting story, with Merrill Lynch - forcing a regime change - at $3.5 billion in proceeds. Merrill topped No. 2 ranked UBS, at $2.1 billion in proceeds, by about $1.4 billion.
Interestingly, for the first quarter of last year, Merrill and UBS placed nine and 10, respectively. This quarter's No. 3 and No. 4, RBS Greenwich Capital and BNP Paribas, had led no deals in first quarter 2003.
Meanwhile, the top CDO banks at this time last year were, in descending order: Citigroup Global Markets (#9 1Q04, #4 YTD), Deutsche Bank Securities (#5 1Q04, #3 YTD), Credit Suisse First Boston (no CDOs 2004), WestLB (no CDOs 2004) and Wachovia Securities (#7 1Q04, #9 YTD).