Apollo Seeks $700 Million for CLO Firm as New Rules Loomby
Leon Black’s Apollo Global Management LLC is raising $700 million for a new firm that will issue collateralized loan obligations, as part of its effort to comply with rules designed to curb excessive risk-taking by managers of the vehicles, according to two people with knowledge of the matter.
The new company will issue and manage CLOs compliant with the new rules, which require CLO managers to own a portion of their deals, the people said, asking not to be identified as the information isn’t public. Apollo itself will cease to issue any more CLOs after the new company is established, although it will continue to manage the funds it has already established, one of the people said.
Issuance of CLOs, which are the biggest buyers of leveraged loans, has trickled to less than a fifth of last year’s pace, according to a March 7 report from Wells Fargo & Co. Only $3.3 billion of CLOs have been raised this year, the bank said, as managers grapple with so-called risk-retention rules requiring managers to hold 5 percent of their CLOs.
Bank of America Corp. cut its issuance forecast for the year to $45 billion, less than half the total in 2015. JPMorgan Chase & Co. analysts said it could fall to as low as $35 billion.
A slowdown in CLO sales may prolong a slump in the loan market. The debt lost 2.8 percent last year in its first downtown since 2008, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index.
CLO managers including Marathon Asset Management and Octagon Credit Investors have been working on raising additional capital to satisfy the new rules, which come into effect in December. Octagon struck a deal in November to be purchased by insurance asset manager Conning that enables it to access additional capital needed to meet the risk-retention requirements. Marathon raised about $200 million as at October last year that allowed it to put up less of its own capital while still complying with the rules.
The new company that Apollo is investing in will also help other CLO managers with capital to fulfill the regulatory requirement, one of the people said. A representative for Apollo declined to comment.