Bloomberg News

Bain’s Sankaty Said to Start Its First Fund to Invest in CLOs

April 11, 2013

Sankaty Advisors LLC, the credit- investment unit of Bain Capital LLC, started raising its first fund focused on collateralized loan obligations, according to a person with knowledge of the plan.

The Sankaty CLO Partners I fund raised about $160 million after the first round and the amount can be increased to as much as $300 million for the final close by the end of the year, said the person, who asked not to be identified because the deal is private. The fund seeks to deliver double-digit annual returns through investments in the equity and the junior portions of mostly U.S. CLOs, the person said.

The new pool is Boston-based Sankaty’s latest effort to broaden its range of credit-investment offerings as CLO issuance grows in the U.S. and is starting to reopen in Europe after investors shunned the hard-to-value structured credit following the collapse of Lehman Brothers Holdings Inc. in 2008. Sankaty had been investing in CLOs through its multi-strategy funds.

Ed Gascoigne-Pees, a spokesman in London for Sankaty, declined to comment.

U.S. CLO issuance more than quadrupled to $55.4 billion in 2012 and is expected by Wells Fargo & Co. to reach $80 billion this year. The total return for the equity portions of U.S. CLOs reached 46 percent in 2012, and 33 percent for BB rated notes, according to Citigroup Inc. data.

The average spread for AAA rated portions of CLOs in the U.S. has tightened 10 basis points this year to 120 basis points, while the BB rated notes fell by 50 basis points to 625 basis points, according to JPMorgan Chase & Co. A basis point is 0.01 percentage point.

CLOs pool high-yield loans and slice them into debt securities of varying risk and return, typically from AAA ratings down to B. The lowest portion, known as the so-called equity tranche, offers the highest potential returns and the greatest risk because investors are the first to see their interest payouts reduced when the loans backing the CLOs default.

To contact the reporter on this story: Patricia Kuo in London at pkuo2@bloomberg.net

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


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