Octagon Credit Investors LLC, a money manager with $5.3 billion in assets, hired Angelo, Gordon & Co.’s Todd Arden to oversee a new distressed-debt unit.
Arden will start in October, according to Octagon Chief Executive Officer Andrew Gordon. Octagon, which was spun out of Chase Manhattan Bank in 1999, plans to raise a fund to invest in U.S. distressed debt, according to a person with knowledge of the plan, who asked not to be identified because the information is private.
“There are always opportunities to invest in the distressed business even with default rates as low as they are today,” New York-based Gordon said in a telephone interview. “It doesn’t mean there aren’t companies that could benefit from a reorganization of the capital structure, new capital, a change of ownership or new operating expertise.”
He declined to comment on any potential fundraising.
Standard & Poor’s is forecasting the default rate to rise to 3.7 percent by June 2013, according to an August Global Fixed Income Research report. The rate was 2.7 percent in June. It had risen to 11.66 percent in November 2009, the ratings company said.
Formed in 1994, Octagon is affiliated with CCMP Capital LLC, the parent company of CCMP Capital Advisors LLC, a private-equity firm focused on middle-market businesses in North America and Europe.
Octagon manages both leveraged loans and high-yield bonds in eight collateralized loan obligations and other funds. Deutsche Bank AG raised a $358.2 million CLO for the firm in February. It has not previously focused on investing in distressed debt, Gordon 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.
“Distressed investing is a specialized form of investing; I don’t think it’s an area where, for lack of a better description, you dabble,” Gordon said. “If you are going to be involved in the distressed market, you need to hire professionals with distressed experience.”
After Arden joins the firm, Gordon anticipates building a distressed team of several people.
Octagon and CCMP will jointly own a new corporation, with a new distressed fund primarily invested in U.S. loans and bonds raised under the Octagon name, the person said.
“We are seeing more transactions in the private-equity world generated through the loan-to-own space, so at some point that might be an opportunity for CCMP to add operational expertise,” Gordon said. “I think the business fits nicely between what Octagon and CCMP does.”
Arden, who will be based in New York, joined Angelo Gordon in 2000 and was promoted to managing director within its special situations group in 2004.