Resource Capital Corp. agreed to purchase Churchill Pacific Asset Management LLC, acquiring five collateralized loan obligations totaling $1.9 billion overseen by the debt manager.
A Resource Capital unit is purchasing Churchill Pacific from Churchill Financial Holdings LLC for $22.5 million, the New York-based real estate investment trust said today in a statement.
CLO consolidation has picked up over the past year as prices of the debt rebound. The activity has been largely driven by limited new issuance, according to Scott Buchta, head of investment strategy at Braver Stern Securities LLC. More than $3.4 billion of CLOs backed by widely syndicated loans were issued last year, compared with $91.1 billion in 2007, according to Bloomberg and Morgan Stanley data.
“Some of the smaller to mid-sized managers have been looking to cash out for a variety of reasons and other larger managers have been looking to add cash-flow streams in order to achieve better economies of scale,” Buchta said in an e-mail. “Consolidating cash flows can help to reduce the impact that fixed costs can have on manager profitability.”
The price of the highest-rated debt rose 3.5 cents last year, Morgan Stanley data show. Yield spreads on those AAA rated pieces contracted to 175 basis points more than the London interbank offered rate as of Jan. 27, from a high of 725 basis points in April 2009. Libor is the rate banks charge to lend to each other. A basis point is 0.01 percentage point.
GSO Capital Partners LP, the credit investment arm of Blackstone Group LP, bought Callidus Capital Management LLC last year, while the Carlyle Group purchased the loan assets overseen by Mountain Capital Advisors, Mizuho Alternative Investments LLC’s U.S. loan-management business, and CLOs from Stanfield Capital Partners LLC in 2010.
Apidos Capital Management LLC, a unit of Resource America Inc., will assist Los Angeles-based Churchill Pacific in managing the CLOs, according to today’s statement. The transaction is expected to close this month, Resource Capital said. Barclays Capital acted as the financial adviser to Churchill Financial.
“We are very pleased by the opportunity this represents for our shareholders,” Jonathan Cohen, chief executive officer of Resource Capital, said in the statement. “We should be able to achieve attractive risk-adjusted returns in an asset class where we have made a substantial profit over many years.”
Christopher Allen, a co-founder of Apidos, 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.