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Highland Capital Management LP will continue to manage a $921 million collateralized loan obligation after Citigroup Inc. (C) tried to have the firm replaced by Babson Capital Management LLC.
The Dallas-based firm exercised a provision in the Liberty CLO’s indenture allowing it to buy some of the riskiest portions, or the so-called equity piece, of the fund from Babson and Citigroup. In April Highland sued Citigroup, the underwriter of the 2005 deal, to stop its removal.
Highland “is pleased to announce that it will continue as portfolio manager for Liberty CLO following the June 13 completion of $74.2 million buyout-of Liberty Class E certificates pursuant to Liberty’s portfolio management agreement,” Mark Okada, co-founder and chief investment officer of Highland, which has about $20 billion in assets, said in a statement provided to Bloomberg News. “Highland looks forward to continuing its management of Liberty CLO for the benefit of all investors.”
CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return.
Scott Helfman, a Citigroup spokesman, and David Coburn, a spokesman for Babson, declined to comment.
In May 2011 Citigroup approached Highland, founded in 1993 by Okada and James Dondero, about liquidating the fund, Highland said in a April 5 court filing in Dallas County, Texas. Some CLOs allow a deal to be called if the majority of the investors in the so-called equity portion vote to do so.
Citigroup would have made gains from the transaction as it had purchased positions in the fund at a heavily discounted price, according to Highland’s suit.
“Citi’s requested liquidation would have violated the terms of the agreement and adversely impacted the interests of the other certificate holders,” according to the complaint.
After Highland refused to liquidate the fund, Citigroup sought to remove the firm and replace it with Babson, which also owned a piece of the CLO’s riskiest portion, according to the filing.
Citigroup, the largest arranger of CLOs backed by widely syndicated loans in the U.S. this year, and its predecessors arranged at least five cash-flow CLOs for Highland.
-- With assistance from David McLaughlin in New York. Editors: Faris Khan, Chapin Wright
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