Citigroup Said to Raise $415 Million CLO to Be Run by Money Manager CIFC

Citigroup Inc. (C) has raised a $415.2 million collateralized loan obligation to be managed by CIFC Corp. (DFR), according to a person with knowledge of the deal.

CIFC Funding 2011-I is the first CLO for the money manager created by the merger of Deerfield Capital Corp. and Commercial Industrial Finance Corp., since 2007, said the person, who declined to be identified because the terms are private. It includes a $275.3 million portion rated AAA by Standard & Poor’s that has a coupon of 165 basis points more than the London interbank offered rate, the person said.

The fund brings CLOs backed by widely syndicated loans issued this year to $11.7 billion, up from $3.4 billion last year, according to data compiled by Bloomberg. Royal Bank of Scotland Group Plc expects $12 billion to $14 billion of CLO issuance next year, excluding refinancings.

“The growth of the new-issue market this year was attributable to a broader domestic and global investor base, large managers purchasing their own equity and the fact investors wanted a product that survived through the crisis,” Justin Pauley, a CLO analyst at RBS, said in a telephone interview. “Triple As tightened, boosting equity returns, which then attracted more third-party equity buyers, which led to increased issuance.”

Scott Helfman, a Citigroup spokesman, and Peter Gleysteen, CIFC chief executive officer, declined to comment.

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.

CLO Spreads

Portions of CLOs rated AAA by S&P yielded 240 basis points more than Libor earlier this month, down from 265 in October, the widest level since December 2009, according to Morgan Stanley.

Spreads were as wide as 725 basis points in April 2009. They dropped to as low as 155 this year in May and June, according to the data. Libor is a rate banks charge to lend to each other.

The CIFC CLO includes a $15 million slice rated AA that has a coupon of 350 basis points more than Libor; a $36.7 million piece graded A with a coupon of 250 basis points; a $17.5 million slice rated BBB with a coupon of 310; and a $19 million piece rated BB with a 500 basis point coupon, the people said. There is also a $17.9 million unrated Class E slice with a coupon of 700 basis points more than Libor. A basis point is 0.01 percentage point.

The fund also includes $33.83 million of a subordinated portion.

CIFC closed its merger with Deerfield in April, according to a news release.

Leveraged loans are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P.

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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