GoldenTree Asset Management LP raised a collateralized loan obligation of about $590 million that allows for as much as a 40 percent investment in second- lien loans and high-yield bonds.
Bank of America Corp. (BAC:US) arranged the deal, which is being used to replace a financing for a credit opportunity fund overseen by New York-based GoldenTree, which manages $15.9 billion in assets, according to two people with knowledge of the deal, who asked not to be identified because the terms are private.
“I don’t think we have seen anything similar with a composition for such a great allowance of bonds,” since the start of the credit crisis, Leon Mogunov, a senior credit officer at Moody’s Investors Service, said in a telephone interview.
A CLO is usually allowed to invest between five and 10 percent of its money in bonds, Mogunov said. 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, typically from AAA ratings down to BB.
The lowest portion, known as the equity tranche, offers the highest potential returns and the greatest risk because investors in this portion are the first to see their interest payouts reduced when loans backing the CLO default.
The fund, GoldenTree Credit Opportunities 2012-1 Financing, has $350 million of rated portions, which includes a $245 million slice graded AAA paying a coupon of 250 basis points more than the London interbank offered rate, one of the people said. The rest of the investment includes an equity piece of about $240 million, whose size may be changed. A basis point is 0.01 percentage point.
Kerrie McHugh, a Bank of America spokeswoman, declined to comment. Elena Miteva, treasurer in GoldentTree’s structured products group, didn’t return a telephone call seeking comment.
At least 50 percent of the CLO must be invested in senior secured loans, according to an Aug. 20 Moody’s report. As much as 40 percent can include corporate bonds, second-lien and unsecured debt. First-lien debt is repaid first in a bankruptcy or liquidation, second-lien debt is repaid next.
Earlier this year the firm raised a $526.8 million CLO with Bank of America, which can spend 90 percent of its funds on loans, according to a May 1 report from the ratings company. The remaining 10 percent can consist of debtor-in-possession loans, senior secured notes, bonds, second-lien and senior-unsecured loans.
There have been $22.2 billion of CLOs backed by widely syndicated loans arranged in the U.S. this year, according to data compiled by Bloomberg. Last year $11.7 billion of such funds were raised. Libor is a rate at which banks say they can borrow in dollars from each other.
CLOs were the largest buyers of leveraged loans during the second quarter, with 54 percent market share, according to a report from the Loan Syndications and Trading Association, citing data from Standard & Poor’s Capital IQ LCD.
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