Bloomberg News

Morgan Stanley Said to Plan Loan Fund for Blackstone’s GSO

June 20, 2011

(Updates with analyst quote in fourth paragraph.)

June 20 (Bloomberg) -- Morgan Stanley is seeking to raise a $688 million loan fund to be managed by GSO Capital Partners LP, the credit investment arm of Blackstone Group LP, according to people with knowledge of the deal.

The collateralized loan obligation, Central Park CLO, includes a $428 million piece rated AAA by Standard & Poor’s, said one of the people, who declined to be identified because the terms are private. It may price by June 30, the person said.

CLOs, a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return, are increasing even as prices on the underlying debt tumble to the lowest since January on concern that the U.S. economy is slowing and Greece’s fiscal crisis roils credit markets.

“The CLO machine is revving its engines,” Barclays Capital analysts led by Bradley Rogoff wrote in a June 17 report.

More than $4 billion of CLOs backed by widely syndicated loans have already been issued this year, surpassing the $3.4 billion raised in the U.S. in 2010, according to data compiled by Bloomberg. GSO priced a $400 million CLO with Bank of America Corp. in December, according to Bloomberg data.

Heather Lucania, a spokeswoman for New York-based Blackstone, didn’t immediately return a call seeking comment.

GSO had fee-earning assets under management of $25.8 billion, as of March 31, according to its website.

The Central Park CLO also includes a $91 million piece rated AA; a $38 million slice graded A; a $36 million portion rated BBB; and a $33 million segment rated BB, the person said. There is also $7 million of Class F debt and $54.95 million of subordinated notes, the person said.

The S&P/LSTA U.S. Leveraged Loan 100 Index declined 0.35 cent for the week to 94.25 cents on the dollar, the lowest level since Jan. 7. The index, which tracks the 100 largest dollar- denominated first-lien leveraged loans, has declined from 96.48 cents on Feb. 14, which was the highest since November 2007.

--Editors: Pierre Paulden, Mitchell Martin

To contact the reporter on this story: Kristen Haunss in New York at khaunss@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net


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