Tuesday, May 11, 2010

PEU's Drive CLO Management Consolidation

Private equity underwriters (PEU's) financed highly leveraged deals from 2005-2007 via collateralized loan obligations. PEU's are buying up billions in CLOs (at a discount) as well as the firms managing the packaged debt securities. StructuredFinanceNews reports:

The Carlyle Group and the New York buyout groups Apollo Global Management, Blackstone Group and Welsh Carson Anderson & Stowe are among the names that have been active in this corner of the structured finance market.
The deals include:

Carlyle purchased $4.2 billion of CLOs and $950 million in managed accounts last week from the New York fixed-income manager Stanfield Capital Partners. In February, Blackstone acquired management agreements for nine CLO and collateralized debt obligation funds valued at $3.1 billion from Callidus Capital Management, a portfolio company of the Washington investment firm Allied Capital Corp. (which Ares Capital Corp. bought last month).

One month earlier, the Guernsey hedge fund Tetragon Financial Group bought Lyon Capital Management of Pittsford, N.Y., and six CLOs worth $2.5 billion from Credit Agricole Group for $10 million.

"Leading private-equity firms are uniquely complementary to credit-management firms. By buying these firms, they can help fund new products and sponsor CLOs," said Ted Gooden, a managing director at the New York investment bank Berkshire Capital Securities, which advised Stanfield on its sale of CLOs to Carlyle.

As buyouts are back in 2010, PEU's can use this new competency to finance their deals.

Citigroup, for example, is marketing ALM Loan Funding 2010-1, a $300 million CLO with triple-A and single-A tranches sponsored by Apollo and scheduled to price in the next two weeks.

Last month, Citi marketed a similar $525 million CLO called Fraser Sullivan for an investment affiliate of buyout group Welsh Carson.

Shadow bankers remain in the dark under financial reform, despite their greed and leverage sins. PEU's have a virtual free pass under the Dodd bill. Private equity will have options for deal financing, BankUnited- a captive bank with billions in FDIC subsidies or internal CLO managers. Let the good times roll.

P.S. Oddly, Highland Capital, the institution mentioned in the graphic, sued The Carlyle Group's LifeCare Hospitals and JP Morgan over their participation in LifeCare's Term B Credit facility. Highland alleged fraud, but the case was dismissed, initially and upon repeal. LifeCare's lawyers have been very busy.