Those familiar with Zais Group's CDO-of-CDOs know that the firm likes to pick a theme for each deal and ZING IV is no exception. This transaction's premise is a higher quality pool than in the past and size - $726.25 million, making it the largest CDO-of-CDOs to-date and the biggest U.S. dollar CDO in 2002.
Zais Group issued the first CDO-of-CDOs with underwriter JPMorgan in 1999 kicking-off the Zais Investment Grade Limited series.
Zais is well known for its proprietary CDO models developed by engineers, some of which previously worked for Bell Labs. The models help Zais pickup cheap secondary paper including distressed CDOs that have entered early amortization and in some cases are not paying interest (PIKing).
Since the deal has a Moody's weighted average rating factor of 360 (exactly Baa2) currently and is coveted to a 485 maximum, Zais and underwriter Deutsche Bank were able to structure the deal without triple-B or double-Bs, which are difficult to place cheaply and can subsequently increase the issuers cost of funding. Further, while the majority of cashflow high-yield CBOs are coveted to a 2300 (B1/B2) WARF and 10% equity, ZING's WARF is 4.7 times less and has an equal amount of equity support (10%) than its peers.
ZING IV was upsized to $726 million from an initial $600 million.
The $535 million in senior FRNs priced at a tight 40 basis points over six months Libor on the Amabac wrapped notes and 50 basis points on the unwrapped bonds (A/L 9.6-year).
ZING IV has a natural triple-A rating on the wrapped tranche. Denise Crowley, a five-year veteran of Zais, is the portfolio manager and is highly regarded, rating and investor sources noted.