FTN Financial Capital Markets and Keefe Bruyette & Woods Inc. are planning to close the 26th CDO in a series of CDOs backed by bank and insurance trust preferred securities this week. The $1 billion Preferred Term Securities XXII, Ltd. is backed by a static portfolio consisting of 66.5% trust preferred securities and senior and subordinated debentures of bank and thrifts; roughly 26% surplus notes and insurance trust preferred securities; and about 7.54% of trust preferred securities issued by REITs. Bank of New York will act as the trustee. The deal is the second this year in the PTS series, the last deal came to market March 1. Four from the series, which dates back to the year 2000, were issued last year.
The static deal, which matures Sept. 2038, consists of five floating-rate tranches and two five-year hybrid tranches, which begin as fixed rate and convert to floating rate. The deal has a turbo feature which, beginning 10 years into its life and extending through maturity, will use 60% of the excess spread normally available to income notes to pay down the principal balance of the most senior notes outstanding. The feature essentially reduces leverage and increases excess spread during the later years of the deal. Beginning at the same time, the trustee will have the option to solicit auction bids for the entire portfolio. The PTS XXII also has an additional principal paydown trigger if an underlying security defaults or is deferred. If the trigger is hit, 50% of interest proceeds, up to the notional amount of the effected security, will be used to pay down rated notes on a pro rata basis.