‘Fierce Rally’ Under Way for Loan CDOs, Morgan Stanley Says

[Joanne98]

By Pierre Paulden

June 8 (Bloomberg) -- A “remarkable change” in investor sentiment has doubled the price of some collateralized loan obligation securities in the past month, according to Morgan Stanley analysts.

CLOs are a type of collateralized debt obligation that pool high-yield, high-risk, or junk, loans and slice them into securities of varying risk and return. Pieces graded AA, the third highest-level of investment grade, rose from 23 cents on the dollar to 47 cents in the past month, Morgan Stanley analysts led by Vishwanath Tirupattur wrote in a June 5 report. Securities ranked A have gained 13 cents from 10 cents since the end of last month, the report said.

Ares Management LLC and Boston-based Sankaty Advisors LLC are among investors that started bidding on CLO securities in late April and the first week of May. Prices for the single-A portions had dropped 90 percent since the financial crisis began in 2007 even as the loans packaged in them had regained some their value. The S&P/LSTA U.S. Leveraged Loan 100, an index of loans rated below investment grade, rose 12 cents from Dec. 31 to 73.6 cents on the dollar on May 1. Loans have since increased in value to 79 cents.

“The continuing rally in underlying leveraged loans has been a major driver of this change in investor sentiment,” on CLOs, the analysts wrote in the report. A “fierce rally” is under way, they wrote.

The top-rated CLO bonds have risen from 71 cents on the dollar to 77 cents since May, the report said.

High-yield, high-risk loans are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

‘Exuberance’

Ares, a Los Angeles-based investment firm with $29 billion in assets under management, sought to buy 22 pieces of CLOs with a face value of as much as $767.6 million on May 6. Boston-based Sankaty, the debt investment arm of Bain Capital LLC, offered to buy as much as $949 million of its own CLOs and those of other managers including Minneapolis-based RiverSource Investments LLC, Eaton Vance Corp. and Deutsche Asset Management Inc. at the end of April.

Continued>>>
http://www.bloomberg.com/apps/news?pid=20601109&sid=aj_t.L2FeAXY

Absolutely NOTHING has changed!!!!!!!!

[dixiegrrrrl]

1. deja vu all over again.