In an effort to upgrade the credit quality of their bond portfolio, the Equitable Life Assurance Society of the U.S. and Equitable Variable Life Insurance Co. have sold approximately $700 million of privately placed fixed-and floating-rate high-yield debt obligations in a collateralized bond obligation transaction.
A portion of the securities in their repackaged form were purchased by the two insurers.
As a result of this transaction and others, the firms have reduced their below-investment-grade portfolio to less than 4% of assets.
The cash proceeds have been reinvested by Equitable Life and EVLICO primarily in investment-grade bonds.
Donaldson, Lufkin & Jenrette, a subsidiary of the Equitable Cos. Inc., established a trust for the CBO consisting of three separate tranches, one carrying an Aaa rating by Moody's Investors Service that was purchased by institutional investors under the Securities and Exchange Commission's rule 144a. These Class A notes, which total $385 million, have a 5% coupon and an expected average life of about 2.4 years.
Some $200 million of Class B asset-backed notes, which bear interest rates from 6.85% to 9.45% and represent senior subordinated obligations of the trust, were purchased by Equitable Life and EVLICO; $101.8 million of Class C asset-backed notes and equity, representing the most subordinated securities, were purchased by The Equitable Cos., the parent of the insurers.
Collateralized bond obligations pool bonds of lower quality and issue multiple tranches of securities. The CBO is collateralized by 105 issues of 66 corporations in 23 industries with a total par value of $703 million.
Alliance Capital Management L.P., another Equitable subsidiary, will serve as manager of the trust.