Drawbridge deal closes US$15bn high-grade week

Fri Jul 11, 2014 3:15pm EDT

NEW YORK, July 11 (IFR) - Fortress Group-linked Drawbridge Special Opportunities Fund (DBSO) pushed through a US$300m trade on Friday to wind up an eventful high-grade week of some US$15bn in new issues priced.

Observers are expecting around US$20bn in the week ahead as borrowers come out of blackout periods, with investor demand still strong despite a wee bout of volatility this week.

The seven-year trade from DBSO was rated Triple B by S&P and run off of high-yield desks.

DBSO, a private investment partnership, was established in August 2002 and has generated an 11.8% annualized return since inception, according to S&P.

Buying into the new trade, investors were willing to stomach the possibility that market dislocation could hurt the liquidity of the fund's investment portfolio.

S&P said it took into account that risk and that strong equity funding, in the form of limited partner (LP) investments to the fund, provided key support to the rating.

"Although LP investments don't provide permanent capital, management can control withdrawals or distributions in a way that should preclude a liquidity squeeze that might threaten creditors. We think this flexibility supports the rating," it said.

DBSO also operated with a stronger cushion of equity capital than banks or finance companies. DBSO's ratio of debt to adjusted total equity (0.17x as of March 31 2014) was considered to be strong by S&P relative to peers. But if this leverage exceeded 1.2 times, it could result in a downgrade.

A relatively diverse portfolio and a track record of adequate earnings during the credit crisis were seen as a positive, but S&P said a lack of predictability in terms of its investment strategies limited the rating.

"An upgrade is unlikely absent a reevaluation of risk in the fund's portfolio or the overall industry risk that attends private financing of esoteric assets," it said.

In the end, the bonds priced with a coupon of 5% and yield of 5.25% for a spread of 313bp over 2.125% June 2021s. Order book details were not disclosed.

DRAWBRIDGE SPECIAL OPPORTUNITIES

Drawbridge Special Opportunities Fund, expected ratings BBB by S&P only, announced a USD300m 7yr NCL senior note offering via WFS(left)/NATX. 144a/RegS w/o reg rights. UOP: GCP, including new investment opportunities. BIZ: Private investment partnership focused on making highly diversified investments in both private and public credit primarily throughout the United States and Western Europe, but also in Australia, Asia and elsewhere on an opportunistic basis.

PRICE TALK: 5.25% (311bp over 7-year Treasury)

PRICED: USD300m. Cpn 5.00%. Due 8/1/21. Ip USD99.541. Yld 5.25%. +313bp vs. 2.125% 6/30/21 UST. MWC T+50bp. First pay 2/1/15. Settlement date 7/16/14. Cusip # 26150TAA7.

VOLUME STATISTICS

THIS WEEK'S VOLUME

25 Tranches for $15.025 BLN

WEEKLY TRANCHES FIXED VS FLOATING

Fixed 22 $13.675 BLN

Floating 3 X $1.350 BLN

25 Tranches for $15.025 BLN

WEEKLY TRANCHES BY MATURITY IG CORPS

1 X 2-YRS $500M

7 X 3-YRS $4.300 BLN

9 X 5-YRS $6.150 BLN

1 X 7-YRS $300M

2 X 10-YRS $1.000 BLN

1 X 10.5-YRS $375M

1 X 15-YRS $300M

1 X 15NC10 $300M

2 X 30-YRS $1.800 BLN

25 Tranches for $15.025 BLN

THIS MONTH'S VOLUME

31 Tranches for $17.675 BLN

Fixed Vs Floating This Month

Fixed 28 X $16.325 BLN

Floating 3 X $1.350 (Reporting By Shankar Ramakrishnan; Editing by Marc Carnegie)