Salomon Smith Barney is pushing ahead with what is expected to be the firm's last CDO underwriting of the year, and Trust Company of the West's first structured finance CDO, called South Coast Funding.
The trade is unofficially talked at 48 basis points plus Libor (7.7-year average life) on the triple-As, from 45 to 48 basis points plus Libor initially. The talk on the double-A and triple-B tranches was unchanged as of press time, but all CDOs remaining in the market are under pressure to widen.
Meanwhile, dealers say they are facing plenty of closed investor books and bargain hunters rallying, "We won't look at anything below plus 55 for triple-As" as the year-end CDO flogging continues.
Structured finance CDOs are particularly difficult to place at the triple-A level as conduits are typically restricted from buying these deals because of their usual 35-year final legal maturity. Structured investment vehicles (SIVs) are frequent buyers of ABS already.
"Ironically, the ABS CDO's equity and mezzanine notes are easier to sell than the triple-As," said one banker. He added that some recent ABS CDOs were not able to clear all of their triple-As, which reappeared in the secondary market in the high 50s a couple months later.