Credit downgrades, opaque structures, less-than-dedicated managers... Traditionally, investors have played a game of pick-your-poison in the complicated business of collateralized debt obligations. Long-time CDO player Phoenix Investment Partners, Ltd. is looking to provide an antidote.
"We want to be the preeminent player in this business," said Michael Haylon, chief investment officer at Phoenix. "We feel that we've made significant strides in that direction."
It's this cohesive "direction" that seems to set Phoenix apart in a business where few shops, if any, are willing or able to implement CDO-dedicated teams. "A couple of years ago there were several deals being done by two- and three-man shops when the market was just taking off," said Nelson Correa, managing director at Phoenix and head of its alternative financial products division. "We see that trend actually disappearing over time. Firms that have the infrastructure and staying power are going to dominate this market."
Track Record/Competitive Advantage
At the onset of the issuance charge in '96, Phoenix was positioning itself to take the reins, taking full advantage of its strength as a multi-sector shop. "An obvious opportunity a couple of years ago for [Phoenix] was in the CDO/CBO market," said Haylon.
"We believe we have more expertise in more types of fixed-income instruments than any firm in the United States. We've been in the high-yield bond market since the early eighties, we were one of the pioneers in emerging-markets debt, we have extensive experience in commercial mortgage-backed securities; we were involved in the first RTC-related transactions in the early nineties...we have terrific track records in all of these areas."
Perhaps the silver bullet in Phoenix's CDO arsenal, however, is its relationship with its parent company, Phoenix Home Life, which has a strong capital position and, most importantly, a willingness to invest in equity or subordinated-debt tranches.
"We really have the ability to put our own money where our mouth is," said Haylon. "We feel that because of the strength of our relationship with Phoenix Home Life and the strength of their balance sheet, we have an enormous competitive advantage in terms of warehousing securities and of providing equity investment in deals when they make sense."
According to some analysts, Phoenix's willingness to put some of their own skin in the deal can almost single-handedly get a deal done. After the equity is sold, selling the investment-grade components is considered to be a relative walk in the park.
With its in-house experience and resources in place, Phoenix's strategic focus shifted to organization. "We have devoted a considerable amount of resources and energy toward building the appropriate infrastructure in terms of systems, operational, administrative, client support, etc...we have created a dedicated team to focus on this business," Haylon said. "We have Nelson (Correa) overseeing the structuring of these transactions-that's his full-time job."
Phoenix has also set up a sales and marketing group headed by Don Segalas, responsible for marketing equity and subordinated debt tranches, with an eye toward relying less on Wall Street and more on Phoenix's own distribution to market at least portions of future transactions.
This ongoing building process doesn't translate into a rookie squad, however. With $51.2 billion in assets under management and nine investment partners with expertise in a variety of asset classes, both experience and stability run deep.
"We have a great track record on the equity side and the fixed-income side," said Haylon. Correa added, "Every deal we do we highlight a different subsector within our firm that specializes in that particular collateral type. We've had the same team in place for a number of years, so there is a lot of stability within the organization, and we've found that's very appealing to investors in CDOs and CBOs."
Phoenix's current responsibilities include the new $300 million NOVA CDO 2001, for which they partnered with Antares Asset Management, a wholly-owned subsidiary of Chicago-based Antares Capital Corporation.
NOVA is Phoenix Investment Partners' eighth structured product completed since 1998 and the fifth managed by the Hartford, Conn.-based fixed-income division of Phoenix Investment Capital, Inc. With $1.6 billion in structured assets under management, PIC's outstanding issues include an emerging markets CDO and an asset-backed CDO, both closed in 2000; and a high-yield CDO closed in 1999.
Phoenix is looking at several ideas for its next CDO, including a multi-sector offering that includes high-grade corporate bonds along with asset-backed securities.