Northwest Farm Credit Services recently closed a $57 million synthetic CLO, referenced to U.S. government agency subsidized loan payments to farming operations in the Pacific Northwest. The structure of the deal offered investors a wide array of credit risk, from super-senior down through speculative-grade classes, which priced with a four-digit spread to Libor.

Led by Banc of America Securities and rated only by Moody's Investors Service, the reference pool was described as first-lien real estate-secured agribusiness loans to high-quality credits. More than 60% of the loan obligors have FICO scores in the 600 to 850, and the loans are seasoned 41 months on average. Loans seasoned less than three months are restricted from the reference pool.

The weighted average loan-to-value of the pool is 48%, with an LTV cap of 80%. Additionally, each individual loan makes up less than 1% of the pool.

Moody's said in its rating release concerning the transaction that the collateral should perform in line with prime mortgage collateral, based on historical data dating back to 1991. "In all cases the borrowers have unlimited liability to repay the loans and a significant portion of the loans are secured by farms that have been in the obligor's family for generations," wrote Moody's.

The offering provided a significant yield pickup from typical cashflow structured finance-backed deals that have tightened throughout the first half of the year and now routinely price in the mid-30s over three-month Libor. The $6.8 million triple-A rated super-senior A class, with a 4.87-year average life, priced at 60 basis points over one-month Libor.

The deal also offered investors classes that are not typically seen in the CDO sector. Double-A rated B notes, also with a 4.87-year average life, priced at 80 basis points over Libor. But the speculative-grade subordinate classes offered returns unavailable in new-issue securitization markets. Class E notes, with a 4.87-year average life and rated Ba2', priced at 530 basis points over Libor while a B2' rated F class paper priced at 1105 basis points over.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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