Mead Park Holdings LLC, the hedge fund led by former Credit Suisse Group AG trader Jack DiMaio, is creating a partnership with Doral Financial Corp. to invest in junk-grade loans.
The hedge fund will take a 75.1 percent stake in the venture, Redan Park Asset Management LLC, which will have $1.1 billion in assets, New York-based Mead Park said today in an e-mailed statement. The assets include collateralized loan obligations, or CLOs, an investment vehicle that buys loans to companies with low credit grades and finances them by selling bonds, a portion of which are rated triple-A.
Mead Park joins hedge funds including Och-Ziff Capital Management Group LLC that seek to take advantage of surging demand for CLOs, which offer higher yields than similarly rated government bonds. The Federal Reserve’s zero-interest policy has pushed investors to reconsider asset-backed debt, four years after the 2008 collapse of the mortgage-bond market contributed to more than $2 trillion of losses globally.
The deal will build on Mead Park’s “strong capital resources, structuring expertise and investment opportunity sourcing capabilities,” DiMaio, 45, said in the statement.
David Moffitt, a Mead Park partner, declined to give the purchase price or say how much the year-old firm has under management. Keith Barnish, who oversees Doral’s CLO investments, confirmed the contents of the statement, and said he plans to stay on as part of the venture’s investing team. The deal is scheduled to close by the end of 2012.
Doral, Puerto Rico’s third-biggest bank, has reported net losses for each of the past six years, totaling $1.04 billion. The San Juan-based lender has been operating under constraining orders with the Fed since at least 2006, according to a regulatory filing.
Under a Sept. 11 agreement with the Federal Reserve Bank of New York, Doral has 60 days to devise “strategies to minimize credit losses and reduce the level of problem assets.”
CLO sales have more than doubled this year and may do so again next year to $60 billion, Rishad Ahluwalia, a JPMorgan Chase & Co. analyst, said in a report last month. That would be the most since a record $104.7 billion in 2007.
DiMaio runs Mead Park with Credit Suisse alumni David Moffitt, 50, and Chris Ricciardi, 43, who worked at Merrill Lynch & Co. last decade creating and selling collateralized debt obligations, a broader category of structured investments that includes CLOs as well as bonds packaged out of other bonds.
Mead Park, which is being advised by former Credit Suisse Chief Executive Officer Oswald Gruebel, 68, is targeting about $2 billion of equity investments in banks, insurers and loan-management companies in Europe and the U.S., people with knowledge of the matter said in May.
CLO managers have sold about $33 billion of the instruments so far this year, double the total for 2011, according to data compiled by Bloomberg. Demand has surged along with other forms of securitized debt, including bonds made up of credit cards, commercial mortgages and auto loans.
CLOs offer some of the richest yields, with triple-A rated versions fetching about 1.5 percentage points more than benchmark floating interest rates, JPMorgan’s Ahluwalia wrote. They’re also considered riskier than other asset-backed securities. Similarly rated bonds packaged from credit-card loans yielded 0.18 percentage point over benchmark rates as of Aug. 29, Wells Fargo & Co. data show.
Och-Ziff, the hedge fund founded by former Goldman Sachs Group Inc. trader Daniel Och, has used JPMorgan to raise $1.07 billion of CLOs since June, two people with knowledge of the deal said earlier this month. Private-equity firms including Apollo Global Management LLC, Blackstone Group LP and Carlyle Group LP are among the 10 biggest CLO managers.
DiMaio’s first hedge fund, DiMaio Ahmad Capital LLC, managed CLOs as well.
That fund, which he started at Zurich-based Credit Suisse with co-founder Nasser Ahmad, was spun out of the bank in 2005. Merrill Lynch bought a minority stake in DiMaio Ahmad in 2006, and Morgan Stanley did so in 2009, when DiMaio agreed to join the firm as head of fixed-income trading. DiMaio left New York-based Morgan Stanley early last year.
In August 2011, Citigroup Inc.’s alternative-investments unit, Citi Capital Advisors, bought DiMaio Ahmad’s CLO business, which at the time had about $2 billion of assets under management.
The following month, Toronto-based private-equity firm Onex Corp. announced it hired Paul Travers from DiMaio Ahmad to expand its CLO business.