Bank of America Merrill Lynch has arranged a $300 million collateralized loan obligation, surprising market participants who, after the worsening of the debt crisis overseas, weren't expecting to see new CLOs for some time.

Signs of a pickup in CLO activity would be welcomed in several corners of the credit markets, because these structured products have been an important source of liquidity. B of A Merrill's deal would be the first CLO deal since May.

"CLOs are surfacing at a cautious pace, so market players must think it's a good time to test the water," a New York banker said.

The Bank of America CLO will consist of refinanced loans. It will be managed by LCM Asset Management, a unit of Tetragon Financial Group. The vehicle will comprise a $212 million triple-A-rated tranche and a $47 million unrated tranche, according to sources. It could not be determined how the $40 million left in the CLO will be rated. A spokeswoman at B of A would not discuss specifics of the deal.

"I think [the B of A CLO] is getting good traction," another New York banker said. "It will be great for the market to get this done, and hopefully more will follow."

Some market participants were skeptical.

"The devil is always in the details for CLOs, but this one sounds like there might be more details than average to dig up," a Boston investor said. "What's the maturity? If it's very short, I would not call it a real CLO. Watch out for total-return swaps that are called CLOs. What are the default assumptions and the equity return assumptions? Unless all of these elements hang together, this is not a real CLO, it's a CLO-like transaction designed to do something else."

CLO sales fell to 17 deals totaling $26.5 billion last year, the lowest level in more than a decade, according to Bloomberg.

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