Princeton, New Jersey-based asset manager Princeton Advisory Group (PAG) has been gearing up to act as investment advisor to the synthetic CLO Canal Point I, which is closing at least $30.5 million of Class A notes this month. Citibank is the swap counterparty for the deal, which references primarily double and single-B rated high-yield senior-secured bank loans.
The deal will mark the asset manager's entrance into the synthetic CLO sector. As of June, the 17-member PAG team had five ABS CDOs under management, along with one cash CLO and more than $5 billion in assets. The company had expanded its CDO platform last year, hiring a team of professionals with bank loan experience led by senior portfolio manager Paul Malecki. He was specifically hired to spearhead the asset manager's entrance into the CLO market.
The CLO's noteholders will have a leveraged return of up to 7.10 times the yield on a maximum underlying pool of $200 million of loans, according to Fitch Ratings. The deal is structured with a pair of early termination triggers. If the deal's net collateral percentage - the ratio of the market value of the posted collateral to the total return swap's notional amount - falls below 11%, 50% of the excess spread will be posted as collateral. If the net collateral percentage falls below 8%, the deal's terms call for a reduction in TRS leverage until an 8% net collateral value percentage is reached. But if the net collateral value sinks below 8% for three business days, the deal terminates. The deal has an additional early termination clause that could allow noteholders to terminate the transaction after three years. The offering calls for a majority vote to do so if the 9% internal rate of return goal set by the manager is met - if not, a 100% vote would be required.
(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.