Moelis Said to Plan CLO Unit Amid Highest Volume Since ’07
Moelis & Co., the advisory firm founded by Kenneth Moelis, is seeking to set up a collateralized loan obligation business as issuance of the funds rises to the most since 2007, according to three people with knowledge of the plan.
The new unit, Steele Creek Investment Management LLC, will be run by Glenn Duffy, a co-founder of Columbus Nova Credit Investments Management LLC, said the people, who asked not to be identified because the information hasn’t been made public. Matt Stouffer, who was previously a money manager at Deerfield Capital Management, also joined the Charlotte, North Carolina-based team.
Investment managers in the U.S. have created $75.3 billion of CLOs, which pool speculative-grade commercial junk loans into securities with varying risk and returns, in 2013, the most in six years, according to Royal Bank of Scotland Group Plc. The boom is helping to slake the thirst of investors for relatively high yields as the Federal Reserve holds interest rates at about zero for a fifth year.
“The market has been open to new managers,” Vishwanath Tirupattur, global head of securitized products research at Morgan Stanley in New York, said in a telephone interview. “In some cases, key personnel from one firm move to start another, but the market may be familiar with their investment approach even though they would now be at a new manager.”
As of October, 26 percent of CLOs raised in 2013 were from managers who were new to the market compared with 24 percent the year before, he said.
Moelis, which provides financial-advisory, capital-raising and asset-management services, in 2012 purchased Freeport Financial, which lends first- and second-lien debt primarily to smaller companies owned by private-equity firms. Freeport announced on Aug. 6 it had completed raising a new fund with about $230 million of capital.
Andrea Hurst, a Moelis spokeswoman, declined to comment.
Duffy co-founded Columbus Nova Credit Investments Management in 2006 with Nicholas Combs and William Hayes, the people said. He previously worked at Babson Capital Management LLC.
The boom in CLOs mirrors a record issuance of leveraged loans. There have been $290.9 billion of new leveraged loans raised this year, more than last year’s peak of $262.7 billion, according to data compiled by Bloomberg.
Leveraged loans, rated below BBB- by Standard & Poor’s and less than Baa3 at Moody’s Investors Service, returned 4.6 percent this year, as measured by the S&P/LSTA U.S. Leveraged Loan 100 Index. That compares with 10.5 percent in 2012.
The credit investment business of Onex Corp., the Canadian buyout firm, was one of 18 new managers to raise CLOs between Jan. 1, 2012 and June 30 of this year, according to a July 31 report from Moody’s. The ratings firm said that many of these issuers are affiliates of private-equity firms or other sponsors with “deep pockets” that provide financial and organizational support.
“New CLO collateral managers continue to enter the CLO new-issue market in 2013, maintaining a trend that emerged with the market revival in early 2012,” Min Xu, a senior credit officer at Moody’s, wrote in the report. “The CLO market has become more receptive to these new managers.”
Och-Ziff Loan Management raised its first fund in June 2012, according to the Moody’s report.
Credit Suisse Group AG raised a $518.2 million CLO for ING Alternative Asset Management LLC last week that includes a $320 million slice rated AAA that pays a coupon of 145 basis points more than the London interbank offered rate, Bloomberg data show.
CLOs were the largest buyers of leveraged loans in the second quarter, with a 53 percent market share, according to a report from the Loan Syndications and Trading Association citing S&P Capital IQ Leveraged Commentary & Data. Retail funds were the second-largest buyer at 33 percent.
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