Triumph Capital Starts Firm Echoing Apollo Fix to CLO Rulesby
Move is response to Dodd-Frank risk-retention regulations
Apollo said to be raising $700 million for similar strategy
Triumph Capital Advisors is raising $250 million for a firm that would allow it to issue collateralized loan obligations while meeting new regulations intended to curb risk-taking in the market for the debt pools, according to people with knowledge of the matter.
The company’s strategy is similar to one being used by Leon Black’s Apollo Global Management, which has been raising $700 million for an entity that would also issue CLOs, people with knowledge of Apollo’s plans said in March. CLOs are the biggest buyers of loans used to fund leveraged buyouts and other debt-fueled transactions. So the new vehicles could provide a boost to the almost $900 billion leveraged loan market after CLO issuance slowed this year in part because of new regulations.
Gibran Mahmud, Triumph Capital’s chief investment officer, declined to comment. The Dallas-based firm, which was started in 2013, is led by former executives of Highland Capital Management and oversees about $2.5 billion. The new entity was set up in response to risk-retention regulations that take effect in December, the company said in a February filing. The rules, part of the 2010 Dodd-Frank financial reform, seek to discourage excessive risk-taking by requiring managers of CLOs and other securitized debt to keep some skin in the game.
Almost a third of Triumph’s target has already been raised, the people said. A $407 million risk-retention compliant CLO was issued by the new entity last week, one of the people said.
CLO sales have dropped 41 percent in 2016 to $19.6 billion compared with the same period a year ago, according to a June 3 report from Wells Fargo & Co.
Some banks have also been pitching ways to help CLO managers find a solution to the rules, offering to raise money from investors to help provide the financing needed to comply with the rules. CLOs pool high-yield corporate debt and slice it into securities of varying risk. The rules require CLO managers to hold 5 percent of their deals.
Eaton Partners, the Stifel Financial Corp.-owned private-fund placement agent, is helping raise the capital, said the people, who asked not to be identified because the information isn’t public. Triumph Capital is the credit-focused investment-management arm of Triumph Bancorp Inc.