 |
The global collateralized debt obligation (CDO) market experienced strong issuance trends during the first half of 2007, but all that changed at the end of June. As the second half got under way, several factors combined to create some far different conditions. The disruption in the residential mortgage-backed securities (RMBS) sector (and the resulting margin calls for managers invested in asset-backed securities [ABS]), the liquidity squeeze in the asset-backed commercial paper (ABCP) market (a large source of financing for CDOs), and investors' increasing reluctance to invest in structured finance securities—particularly CDOs—hurt managers and stymied new issuance. In fact, global CDO new issuance during the second half of 2007 fell to $113.3 billion, compared with $225.6 billion during the same period in 2006. Since July 2007, the market has expressed concerns about several CDO managers' investment strategy, the value of ABS holdings in total return vehicles, margin calls, and subsequent financing and liquidity. Standard & Poor's Ratings Services now believes that the CDO market will experience consolidation in 2008 as some managers exit the business due to increased redemptions and staff or team departures. In addition, we expect that new CDO managers may exit the business due to their inability to meet costs with fewer assets under management and/or fees generated solely from CDOs. There were also various structural changes to CDOs that managers brought to market during the second half of 2007, including the appearance of static collateralized loan obligation (CLO) structures, bankers combining several warehouse lines into CDOs with either one or multiple managers, and managers deferring their management fees. We expect these structural changes will play a role in the statistics for 2008, including the number of CDO managers in the market. Standard & Poor's latest study of the largest cash flow CDO managers, which marks the first time we included both U.S.- and European-based managers, focuses on the period from Jan. 1, 2007, through Sept. 30, 2007. The rankings set forth the largest managers by the original balance of Standard & Poor's rated liabilities (excluding CDO redemptions). They are not, however, a reflection of a manager's quality, experience across credit cycles, surveillance, asset selection, CDO downgrade history, or the breadth of the portfolio management team. (For our year-end 2006 study, see "CDO Spotlight: CDO of ABS Managers Dominate The Top Of The 2006 U.S. Cash Flow CDO Rankings for Outstanding Liabilities," published April 18, 2007, on RatingsDirect at www.ratingsdirect.com and on Standard & Poor's premier CDO Interface Web site at www.cdointerface.com.)
Our latest study reported on:
-
The 30 largest global cash flow CDO managers (and the most active issuers);
-
The largest global, U.S., and European-based CLO managers (and the most active issuers);
-
The largest global, U.S., and European-based CDO of ABS managers (and the most active issuers);
-
The largest trust preferred securities (TruPS) CDO issuers; and
-
New CDO managers in the U.S. and Europe.
While CDO maturities average 10-12 years, many managers have other funds under management that are financed through short-term financing. If total return funds become subject to redemptions and/or asset managers are unable to roll over their short-term financing, they may experience a decrease in assets under management and a reduction in fees. This could affect managers' ability to retain key investment professionals and manage existing CDOs under management.
Largest Global Cash Flow CDO Managers Are Based In The U.S. |
During the first nine months of 2007, Standard & Poor's rated approximately $305 billion in global cash flow CDOs, $251 billion of which was in the U.S. Tables 1 and 2 show the largest global and U.S. cash flow CDO managers, respectively, as of Sept. 30, 2007. TCW Asset Management Co. (TCW) is the largest manager in terms of outstanding Standard & Poor's rated liabilities (see table 1). For 29 of the top 30 global cash flow CDO managers, at least three-quarters of their CDOs under management are in U.S. cash flow CDOs. Only Alcentra Inc./Alcentra Ltd. (Alcentra) derives at least 75% of its volume from European issuance, primarily from CDOs of European leveraged loans. Furthermore, 26 of the top-ranked global cash flow CDO managers are also among the top 30 U.S. cash flow CDO managers (see table 2).
Table 1
|
30 Largest Global Cash Flow CDO Managers As Of Sept. 30, 2007 |
|
Rank |
Rank as of Dec. 31, 2006* |
Current collateral manager or servicer |
Total liabilities ($) |
CDOs of ABS ($) |
CLOs ($) |
|
1 |
1 |
TCW Asset Management Co. |
41,352,121,800 |
35,187,121,800 |
3,220,000,000 |
|
2 |
12¶ |
Cohen Bros Financial Management |
31,967,864,950 |
18,402,600,000 |
1,089,000,000 |
|
3 |
5 |
Credit Suisse Alternative Capital/Credit Suisse International |
23,742,046,414 |
7,923,650,000 |
13,065,297,150 |
|
4 |
9 |
Harding Advisory LLC |
21,663,675,000 |
20,644,475,000 |
— |
|
5 |
4 |
BlackRock Financial Management Inc. |
21,602,028,480 |
18,825,628,480 |
2,776,400,000 |
|
6 |
3 |
Bear Stearns Asset Management |
21,105,650,000 |
19,169,300,000 |
1,689,350,000 |
|
7 |
2 |
Duke Funding Management LLC |
19,861,477,200 |
19,861,477,200 |
— |
|
8 |
N/A |
Structured Asset Investors/Structured Credit Partners LLC |
19,093,075,333 |
18,006,389,000 |
1,086,686,333 |
|
9 |
8 |
Highland Capital Management L.P./Highland Capital Management Europe Ltd. |
18,868,965,975 |
3,023,200,000 |
15,845,765,975 |
|
10 |
7 |
Vanderbilt Capital Advisors LLC |
16,781,389,000 |
16,781,389,000 |
— |
|
11 |
10 |
Babson Capital Management LLC/Babson Capital Europe Ltd. |
16,535,574,266 |
2,406,800,141 |
10,226,449,125 |
|
12 |
6 |
Aladdin Capital Management LLC/Aladdin Capital Management UK LLP |
15,783,929,500 |
12,025,700,000 |
3,758,229,500 |
|
13 |
11 |
ACA Capital Holdings/ACA Capital Management (U.K.) Pte. Ltd. |
15,699,636,640 |
14,006,225,000 |
1,693,411,640 |
|
14 |
16 |
GSC Partners/GSCP (NJ) L.P. |
13,535,277,800 |
8,134,000,000 |
4,800,777,800 |
|
15 |
30 |
Princeton Advisory Group Inc. |
13,142,211,000 |
10,551,831,000 |
2,590,380,000 |
|
16 |
15 |
Vertical Capital LLC |
12,984,875,000 |
12,984,875,000 |
— |
|
17 |
13 |
Deerfield Capital Management LLC |
12,187,817,720 |
7,137,250,000 |
4,140,567,720 |
|
18 |
N/A |
Resource America Inc. |
11,522,848,276 |
5,462,000,000 |
2,655,348,276 |
|
19 |
N/A |
Alcentra Inc./Alcentra Ltd. |
10,321,032,270 |
|
9,976,880,770 |
|
20 |
N/A |
Fortress Investment Group LLC |
10,041,641,125 |
4,422,647,125 |
5,618,994,000 |
|
21 |
22 |
Tricadia CDO Management LLC |
9,946,350,000 |
9,167,350,000 |
779,000,000 |
|
22 |
24 |
MFS Investment Management |
9,473,942,000 |
8,455,187,000 |
566,455,000 |
|
23 |
14 |
General Electric Asset Management Corp. |
9,327,910,604 |
2,247,100,000 |
5,600,404,000 |
|
24 |
18 |
Declaration Management & Research LLC |
9,179,150,000 |
9,179,150,000 |
— |
|
25 |
N/A |
Rabobank International |
8,803,679,730 |
7,513,940,000 |
1,229,739,730 |
|
26 |
17 |
ICP Asset Management LLC |
8,778,200,000 |
8,778,200,000 |
— |
|
27 |
19 |
PIMCO |
8,747,403,050 |
3,840,700,000 |
3,631,263,050 |
|
28 |
N/A |
Taberna Capital Management |
8,619,546,100 |
— |
— |
|
29 |
N/A |
Stone Tower Debt Advisors LLC |
8,285,606,000 |
1,543,000,000 |
6,432,231,000 |
|
30 |
27 |
Prudential Investment Management/Pramerica Investment Management |
8,153,630,279 |
284,700,000 |
4,879,835,873 |
|
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. ¶The ranking is based on Strategos Capital Management LLC, which is a division of Cohen Bros Financial Management. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. N/A—Not applicable. |
Table 2
|
30 Largest U.S. Cash Flow CDO Managers As Of Sept. 30, 2007 |
|
Rank |
Global rank |
Rank as of Dec. 31, 2006* |
Collateral manager or servicer |
Total liabilities ($) |
|
1 |
1 |
1 |
TCW Asset Management Co. |
41,352,121,800 |
|
2 |
2 |
12¶ |
Cohen Bros Financial Management |
30,921,440,000 |
|
3 |
4 |
9 |
Harding Advisory LLC |
21,663,675,000 |
|
4 |
5 |
4 |
BlackRock Financial Management Inc. |
21,602,028,480 |
|
5 |
6 |
3 |
Bear Stearns Asset Management |
21,105,650,000 |
|
6 |
3 |
5 |
Credit Suisse Alternative Capital |
20,630,397,264 |
|
7 |
7 |
2 |
Duke Funding Management LLC |
19,861,477,200 |
|
8 |
8 |
N/A |
Structured Asset Investors/Structured Credit Partners LLC |
19,093,075,333 |
|
9 |
10 |
7 |
Vanderbilt Capital Advisors LLC |
16,781,389,000 |
|
10 |
9 |
8 |
Highland Capital Management L.P. |
16,284,700,000 |
|
11 |
12 |
6 |
Aladdin Capital Management LLC |
15,271,775,000 |
|
12 |
13 |
11 |
ACA Capital Holdings |
15,216,800,000 |
|
13 |
15 |
30 |
Princeton Advisory Group Inc. |
13,142,211,000 |
|
14 |
16 |
15 |
Vertical Capital LLC |
12,984,875,000 |
|
15 |
11 |
10 |
Babson Capital Management LLC |
12,373,575,141 |
|
16 |
17 |
13 |
Deerfield Capital Management LLC |
11,801,150,000 |
|
17 |
14 |
16 |
GSC Partners/GSCP (NJ) L.P. |
11,422,250,000 |
|
18 |
18 |
N/A |
Resource America Inc. |
11,156,500,000 |
|
19 |
21 |
22 |
Tricadia CDO Management LLC |
9,946,350,000 |
|
20 |
22 |
24 |
MFS Investment Management |
9,473,942,000 |
|
21 |
23 |
14 |
General Electric Asset Management Corp. |
9,327,910,604 |
|
22 |
24 |
18 |
Declaration Management & Research LLC |
9,179,150,000 |
|
23 |
25 |
N/A |
Rabobank International |
8,803,679,730 |
|
24 |
26 |
17 |
ICP Asset Management LLC |
8,778,200,000 |
|
25 |
29 |
N/A |
Stone Tower Debt Advisors LLC |
8,285,606,000 |
|
26 |
— |
N/A |
Church Tavern Advisors LLC |
8,127,575,000 |
|
27 |
— |
N/A |
250 Capital LLC |
7,975,300,000 |
|
28 |
20 |
N/A |
Fortress Investment Group LLC |
7,880,494,000 |
|
29 |
— |
28 |
Terwin Money Management LLC |
7,832,250,000 |
|
30 |
— |
N/A |
NIR Capital Management LLC |
7,411,300,000 |
|
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. ¶The ranking is based on Strategos Capital Management LLC, which is part of Cohen Bros Financial Management. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. N/A—Not applicable. |
Largest global managers accounted for 46% of 2007 issuance |
The top 10 managers have remained fairly consistent with the U.S. rankings as of our year-end 2006 study. Other standings may have shifted due, in part, to the European transactions that we included in our calculations, as well as varied issuance levels across managers in 2007. In the first nine months of 2007, the top 30 global CDO managers accounted for 46.4% of cash flow CDO issuance (see table 3). Of those managers, only Pacific Investment Management Co. (PIMCO) was absent from the new-issue market during this period. Table 3
|
30 Highest-Volume Global Cash Flow CDO Issuers Across Assets Between Jan. 1, 2007, And Sept. 30, 2007 |
|
Rank |
Collateral manager or servicer |
Total liabilities ($) |
U.S. managed CDOs ($) |
European managed CDOs ($) |
|
1 |
Cohen Bros Financial Management |
13,803,421,300 |
13,449,330,000 |
354,091,300 |
|
2 |
Harding Advisory LLC |
11,199,250,000 |
11,199,250,000 |
— |
|
3 |
Structured Asset Investors/Structured Credit Partners LLC |
8,640,965,000 |
8,640,965,000 |
— |
|
4 |
TCW Asset Management Co. |
7,972,841,800 |
7,972,841,800 |
— |
|
5 |
Credit Suisse Alternative Capital/Credit Suisse International |
7,544,440,750 |
6,936,968,000 |
607,472,750 |
|
6 |
BlackRock Financial Management Inc. |
5,800,868,480 |
5,800,868,480 |
— |
|
7 |
GSC Partners/GSCP (NJ) L.P. |
5,249,758,600 |
4,468,900,000 |
780,858,600 |
|
8 |
Bear Stearns Asset Management |
4,878,300,000 |
4,878,300,000 |
— |
|
9 |
250 Capital LLC |
4,703,500,000 |
4,703,500,000 |
— |
|
10 |
NIR Capital Management LLC |
4,422,500,000 |
4,422,500,000 |
— |
|
11 |
Princeton Advisory Group Inc. |
4,388,900,000 |
4,388,900,000 |
— |
|
12 |
ACA Capital Holdings/ACA Capital Management (U.K.) Pte. Ltd. |
4,375,311,640 |
3,892,475,000 |
482,836,640 |
|
13 |
Highland Capital Management L.P./Highland Capital Management Europe Ltd. |
4,246,324,000 |
3,264,100,000 |
982,224,000 |
|
14 |
Vertical Capital LLC |
4,216,375,000 |
4,216,375,000 |
— |
|
15 |
Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. |
3,644,175,320 |
2,451,000,000 |
1,193,175,320 |
|
16 |
AllianceBernstein L.P. |
3,641,308,000 |
3,641,308,000 |
— |
|
17 |
Tricadia CDO Management LLC |
3,622,100,000 |
3,622,100,000 |
— |
|
18 |
Alcentra Inc./Alcentra Ltd. |
3,515,202,270 |
752,750,000 |
2,762,452,270 |
|
19 |
Taberna Capital Management |
3,353,341,100 |
1,417,000,000 |
1,936,341,100 |
|
20 |
Resource America Inc. |
3,337,348,276 |
2,971,000,000 |
366,348,276 |
|
21 |
Fortress Investment Group LLC |
3,296,955,000 |
2,299,994,000 |
996,961,000 |
|
22 |
MFS Investment Management |
3,264,000,000 |
3,264,000,000 |
— |
|
23 |
Collineo Asset Management GmbH |
3,039,796,000 |
— |
3,039,796,000 |
|
24 |
Investec Bank (U.K.) Ltd. |
2,975,783,008 |
— |
2,975,783,008 |
|
25 |
Vanderbilt Capital Advisors LLC |
2,974,000,000 |
2,974,000,000 |
— |
|
26 |
State Street Global Advisors |
2,869,000,000 |
2,869,000,000 |
— |
|
27 |
KKR Financial Advisors |
2,784,150,000 |
2,784,150,000 |
— |
|
28 |
Church Tavern Advisors LLC |
2,672,500,000 |
2,672,500,000 |
— |
|
29 |
Goldentree Asset Management LLC/Goldentree Asset Management L.P. |
2,534,138,636 |
1,979,000,000 |
555,138,636 |
|
30 |
Zais Group LLC |
2,498,105,000 |
2,498,105,000 |
— |
|
Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. |
Through Sept. 30, 2007, the largest global CDO managers had a strong CDO of ABS presence and CDOs of ABS represented more than half of the outstanding issuance for 19 of the top 30 global CDO managers. This was partly explained by the larger deal sizes for ABS relative to CLOs. In the first nine months of 2007, the average cash flow CDO of ABS was approximately $956 million in rated liabilities, compared with $526 million for the average cash flow CLO. Since Sept. 30, 2007, there has been a decline in CDO of ABS issuance due, in part, to developments in the RMBS market. Furthermore, the outstanding volume for the CDO of ABS managers remains particularly fluid given the underlying assets' weak performance. From Oct. 15, 2007, and Jan. 22, 2008, Standard & Poor's has received 24 acceleration notices, 32 event of default notices, and 10 liquidation notices on CDOs of ABS. We continue to monitor the developments and expect to see some changes in the rankings of the largest CDO managers as CDOs of ABS liquidate and new-issuance levels drop off. For additional information on Standard & Poor's residential mortgage-related rating actions on U.S. CDO transactions, please visit RatingsDirect, at www.ratingsdirect.com, or www.spviews.com. Many of the largest global CDO managers were diversified across more than one CDO asset type as of Sept. 30, 2007. In fact, in our study, 22 of the top 30 global managers did so. Duke Funding Management LLC, ICP Asset Management LLC, Declaration Management & Research LLC, and Vanderbilt Capital Advisors LLC have 100% of all Standard & Poor's rated cash flow issuance in CDOs of ABS. In contrast, CLOs represented three-quarters of all rated cash flow volume for Alcentra (97%), Highland Capital Management L.P./Highland Capital Management Europe Ltd. (Highland; 84%), and Stone Tower Debt Advisors LLC (78%). |
|
 |
Global CLO Issuance Is Diversified Across Multiple Managers |
CLOs have been a mainstay of the CDO market since their inception in 1998, and CLO volume has continued to increase year over year, even amid the high corporate defaults in 2000-2003. Since 1998, Standard & Poor's has rated more than $350 billion in cash flow CLOs across more than 130 CLO managers. Highland and Credit Suisse Alternative Capital/Credit Suisse International (Credit Suisse) were the top two largest global and U.S. cash flow CLO managers, respectively, as of Sept. 30, 2007, the same standings they held in our 2006 study. Table 4 lists the largest global cash flow CLO managers and shows when these managers entered the U.S. and/or European CLO markets. Tables 5 and 6 show the largest CLO managers in the U.S. and Europe. Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. (Halcyon) is the newest of the top 30 global CLO managers, having entered both the U.S. and European CLO markets in 2006.
Table 4
|
30 Largest Global Cash Flow CLO Managers As Of Sept. 30, 2007 |
|
Rank |
Rank as of Dec. 31, 2006* |
Collateral manager or servicer |
Total liabilities ($) |
First S&P rated U.S. managed cash flow CLO vintage |
First S&P rated European managed cash flow CLO vintage |
|
1 |
1 |
Highland Capital Management L.P./Highland Capital Management Europe Ltd. |
15,845,765,975 |
1997 |
2005 (replacement manager) |
|
2 |
2 |
Credit Suisse Alternative Capital/Credit Suisse International |
13,065,297,150 |
1999 |
2004 |
|
3 |
6 |
Babson Capital Management LLC/Babson Capital Europe Ltd. |
10,226,449,125 |
1999 |
2001 |
|
4 |
N/A |
Alcentra Inc./Alcentra Ltd. |
9,976,880,770 |
2003 |
2001 |
|
5 |
9 |
Stone Tower Debt Advisors LLC |
6,432,231,000 |
2004 |
— |
|
6 |
5 |
RiverSource Investments LLC |
6,152,775,000 |
2000 |
— |
|
7 |
4 |
Ares Management Ltd. |
5,787,225,250 |
1999 |
2007 |
|
8 |
N/A |
Fortress Investment Group LLC |
5,618,994,000 |
2004 |
— |
|
9 |
3 |
General Electric Asset Management Corp. |
5,600,404,000 |
1999 |
— |
|
10 |
18 |
Blackstone Debt Advisors L.P. |
5,587,174,150 |
2003 |
2006 |
|
11 |
8 |
Sankaty Advisors LLC |
5,578,363,850 |
2001 |
2006 |
|
12 |
17 |
KKR Financial Advisors |
5,497,650,000 |
2005 |
— |
|
13 |
7 |
INVESCO Senior Secured Management Inc. |
5,286,373,395 |
1997 |
2002 |
|
14 |
26 |
Carlyle High Yield Partners/CELF Investment Advisors Ltd. |
5,181,530,050 |
1999 |
2005 |
|
15 |
19 |
GSO Capital Partners L.P. |
4,968,435,000 |
2003 |
— |
|
16 |
28 |
Prudential Investment Management/Pramerica Investment Management |
4,879,835,873 |
2002 |
2005 |
|
17 |
25 |
GSC Partners/GSCP (NJ) L.P. |
4,800,777,800 |
2002 |
2003 |
|
18 |
N/A |
Mizuho Investment Management (U.K.) Ltd. /Mountain Capital Advisors |
4,689,950,840 |
2004 |
2004 |
|
19 |
N/A |
Harbourmaster Capital Ltd. |
4,212,882,470 |
— |
2004 |
|
20 |
27 |
AIG Global Investment Corp./AIG Global Investment Corp. (Europe) Ltd. |
4,212,003,650 |
2004 |
2006 |
|
21 |
12 |
Deerfield Capital Management LLC |
4,140,567,720 |
2002 |
2007 |
|
22 |
N/A |
Avoca Capital Holdings |
4,096,254,130 |
— |
2003 |
|
23 |
N/A |
Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. |
4,044,650,520 |
2006 |
2006 |
|
24 |
N/A |
Goldentree Asset Management LLC/Goldentree Asset Management L.P. |
3,938,830,246 |
2002 |
2006 |
|
25 |
13 |
MJX Asset Management LLC |
3,859,850,000 |
2002 |
— |
|
26 |
14 |
Black Diamond Capital Management LLC |
3,819,281,900 |
1999 |
— |
|
27 |
16 |
Aladdin Capital Management LLC/Aladdin Capital Management UK LLP |
3,758,229,500 |
2001 |
2007 |
|
28 |
21 |
Octagon Credit Investors/Octagon Credit Investors (U.K.) Ltd. |
3,678,656,297 |
1999 |
2007 |
|
29 |
20 |
PIMCO |
3,631,263,050 |
1998 |
2002 |
|
30 |
10 |
Stanfield Capital Partners LLC |
3,568,000,000 |
2000 |
— |
|
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. N/A—Not applicable. |
Table 5
|
30 Largest U.S. CLO Managers As Of Sept. 30, 2007 |
|
Rank |
Global CLO rank |
Rank as of Dec. 31, 2006* |
Collateral manager or servicer |
Total liabilities ($) |
First S&P rated U.S. managed CLO vintage |
|
1 |
1 |
1 |
Highland Capital Management L.P. |
13,261,500,000 |
1997 |
|
2 |
2 |
2 |
Credit Suisse Alternative Capital |
9,953,648,000 |
1999 |
|
3 |
5 |
9 |
Stone Tower Debt Advisors LLC |
6,432,231,000 |
2004 |
|
4 |
6 |
5 |
RiverSource Investments LLC |
6,152,775,000 |
2000 |
|
5 |
3 |
6 |
Babson Capital Management LLC |
6,064,450,000 |
1999 |
|
6 |
8 |
N/A |
Fortress Investment Group LLC |
5,618,994,000 |
2004 |
|
7 |
9 |
3 |
General Electric Asset Management Corp. |
5,600,404,000 |
1999 |
|
8 |
12 |
17 |
KKR Financial Advisors |
5,497,650,000 |
2005 |
|
9 |
7 |
4 |
Ares Management Ltd. |
5,343,675,000 |
1999 |
|
10 |
15 |
|
|
