Activity may be down sharply in CDOs, but there could be early signs of life returning to the CLO market, which in turn may signal a pickup in demand for leveraged loans in coming months, according to a market participant who is involved with trust services for the securitization market.

''We are starting to get requests for proposals,'' said Mikus Kins, senior vice president and head of CDO Europe at LaSalle Global Trust Services. Kins was attending this week’s global securitization conference in Cannes, France.
LaSalle Global Trust Services has been a unit of Bank of America since October 2007. The firm, once owned by ABN AMRO, provides trust and agency services for the securitization markets.

''We are meeting with clients here. They are all cautious, but some have large cash balances. They are looking for ways to put it to work,'' Kins said.

The RFPs are bids made by Kins' firm to be appointed trustee for transactions such as CLOs. According to Kins the pickup in RFPs has been evident in the last four to six weeks. While there has been an uptick in RFPs, which usually means a CLO deal is being readied, the pace is still off from year-ago levels. For example, says Kins, his firm typically fielded one RFP a day in the hectic markets of 2006 and 2007, but today LaSalle gets two RFPs a week.

So what do these early calls for an RFP mean?

''Theoretically, a deal gets done in three or four months'' after LaSalle has been contacted to bid on work as a trustee for a deal, Kins said.

When it comes to sentiment in the structured finance markets, Kins said, there is a ''quiet optimism'' among professionals such as a bankers and hedge funds creating cash flow CLOs.

At the same time, CDO activity is off dramatically this year. Market players say what was once a hotbed of deal activity for securitization markets now has been in hibernation after last summer's credit storm. That said, Lehman Brothers recently completed a €3 billion deal, known as Excalibur I, and this mammoth CDO was backed largely by commercial real estate mortgages for European real estate.
The early signs of an uptick in activity for LaSalle may suggest that investors now see a bottom to the drop in leverage loan prices and the CLOs that come to market in coming months may sop up leveraged loan debt that has weighed on many commercial bank and investment bank balance sheets.

''People are seeing attractive prices'' in the leveraged loan market, said Kins.
Additionally, CDO activity may be moribund but there are signs that CDO managers want to tweak terms on existing CDOs and CLOs, suggesting that investors want to replace existing collateral in the structures. Kins said the moves to change terms may hint that actively managed CDO managers want to buy a wider range of debt, possibly leveraged loans trading at distressed levels.

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