Last week Salomon Smith Barney launched and priced Northland Funding I CDO, a $400 million arbitrage cashflow CBO for Trust Company of the West.
The deal saw aggressive pricing at 44 basis points over the six-month Libor on the triple-As, compared to Pacific Coast Asset Management's LIDO IG CDO, which Lehman Brothers brought at plus 47 the prior Friday, according to IFR Asset-Backed Securities.
No explanation for the three basis point differential was available at press time, but one investor speculated it could be related to the underlying collateral. Meanwhile, LIDO reportedly had a lower cost of debt than Northland. Northland purportedly had about 75% of its book filled at plus 43 from conduits, but the last 25% of the investors needed the extra spread for a +44 print, sources noted. "Conduits need size more than a wide spread, while the total return shops are demanding a wider level," commented one CDO veteran away from the deal.
Nevertheless, several conduits are running up against cash limits for their vehicles and are in the process of increasing those limits. For example, one conduit is upping its size to $2 billion from its present $1 billion limit at the end of the month allowing them to buy CDOs again.