Deutsche goes extra mile to underwrite Pimco CDO

Deutsche Bank has agreed to allow Pacific Investment Management Company (Pimco) full and unfettered access to its proprietary portfolio of corporate loans to secure the underwriting mandate for Pimco’s forthcoming Euro-denominated CDO.

In a deal, which is believed to be unique, Deutsche Bank has allowed Pimco to have complete freedom in choosing the outstanding loans to be included in the company's first European CDO. “The agreement between Pimco and Deutsche Bank is believed to be a first,” said a source close to the deal. “When Pimco approached other banks with this proposal they all balked at the idea.” The source pointed out that Deutsche will be compensated from the loss of some of its high-quality loans by underwriting fees.

Deutsche Bank is understood to be very keen to be the deal’s underwriter in a bid to win market share. Euro-denominated CDOs have been growing rapidly in recent years, from one deal in 1999, five in 2000, to 12 in 2001 worth E53 billion.

But while investor demand is high, arrangers have been struggling to ensure sufficient diversity of credit within the CDO portfolios. Pimco’s agreement with Deutsche enables the California-based CDO asset manager to bundle good credit into the $400 million portfolio. The CDO will comprise 75% bank loans and 25% bonds, and contain 125 names, making the exposure to each credit worth about 0.75% of the deal.

Pimco is presently marketing the $40 million equity tranche and the deal is expected to close in mid-April.