Onex Corp.’s credit investment group raised a $1 billion collateralized loan obligation, the largest fund raised in the U.S. this year, according to a person with knowledge of the deal.
The CLO for the credit group of Canada’s largest buyout firm surpasses an $838 million fund for Symphony Asset Management LLC, issued earlier this month, according to Royal Bank of Scotland Group Plc. The CLO for Onex Credit Partners LLC was arranged by Bank of America Corp., said the person, who asked not to be identified because the information isn’t public.
Increasing regulatory and legislative scrutiny hasn’t curbed the market for CLOs as issuance of the deals that helped finance some of the biggest buyouts in history reached $44.1 billion this year, more than half of sales completed in all of 2013. The funds were the biggest buyers of junk-rated loans in the first quarter, increasing their market share to the most since 2006, according to the Loan Syndications and Trading Association.
“This shows the market’s tremendous demand for CLO paper, especially in AAA and equity tranches, as well as the strong appetite from CLO managers to build” assets under management, Ken Kroszner, head of CLO strategy at RBS in Stamford, Connecticut, said in a telephone interview.
CLOs pool high-yield corporate loans and slice them into securities of varying risk and return, typically from AAA ratings down to BB. The lowest portion, known as the equity tranche, offers the highest potential returns and the greatest risk because investors are the first to see their interest payouts reduced when loans backing the CLO default.
The Onex CLO has three AAA slices, including a $193 million piece that pays a rate of 150 basis points more than the London interbank offered rate, the person said. Libor is a rate at which banks lend to each other.
Emma Thompson, an Onex spokeswoman, didn’t return a telephone call seeking comment. Zia Ahmed, a Bank of America spokesman, declined to comment.
The average CLO size has grown during the last two years, rising to $601 million for deals issued in May, according to RBS. The average size for funds raised between January and April was $513 million, and $479 million in 2013.
CLOs made up 58 percent of buyers of leveraged loans during the first three months of the year, an increase from 53 percent in 2013, the LSTA said in an April 23 report citing Standard & Poor’s Capital IQ Leveraged Commentary and Data. The funds had a 61.1 percent share in 2006.
Retail loan funds had the second-largest share of the market at 26 percent last quarter, down from 32 percent in 2013.