AGL will reinvest distributions of CLO shares to buy loans in a new fund
NEW YORK, April 9 (LPC) – AGL Credit Management is seeking to reinvest distributions that would have been made to more junior investors in its US Collateralized Loan Obligation (CLO) in order to purchase new loans, creating a unique structure in the midst of market volatility caused by the coronavirus pandemic.
The Asset Manager’s AGL Core CLO 4, which it is raising with Barclays, will deposit all cash distributions of the share tranche during the fund’s one-year reinvestment period into a “collection account. principal “to buy additional loans, according to three sources. These loans are now traded at a discount.
CLOs pay their creditors a fixed rate plus three-month Libor using interest received from their investment firms. Equity investors, the holders of the riskier and more junior part of the fund, receive the remaining interest after bondholder distributions are completed. CLOs are the biggest buyers in the US $ 1.2 billion leveraged loan market.
“The current market environment allows CLO managers to purchase loans at significantly reduced dollar prices. If the manager is good at picking the right sectors and the right loans, then a good chunk of those loans bought at a discount could pay at par, ”said Jason Merrill, investment specialist at Penn Mutual Asset Management. “This new feature of turning stock distributions into dry powder to buy loans at discounted prices… will improve the CLO manager’s ability to build par, which is good for debt and equity investors.”
The fund is a beacon of hope for the US CLO market, which closed in the second half of March as the rapidly spreading virus disrupted supply chains and forced retail operations to shut down , pushing companies to lay off workers or put them on leave.
In a context of market volatility, CLO tranche spreads widened and loan prices fell dramatically.
The LPC 100, a cohort of America’s 100 most liquid loans, has fallen more than 21% year-to-date to 77.87 cents to the dollar on March 23, a nearly 11-year low. The benchmark rebounded to 90.07 cents on Wednesday.
AGL was founded in 2019 by Peter Gleysteen, CEO of the company, and Thomas H. Lee, its non-executive chairman, who was previously chairman of buyout agency Thomas H. Lee Partners.
The company’s initial institutional investment partners include an affiliate of the Abu Dhabi Investment Authority and an unidentified U.S. state pension fund, which together have committed $ 650 million in equity, according to a press release. Last year. Thomas H. Lee’s family office has also invested in AGL.
The AGL Core CLO 4, which will comply with European Union risk retention rules, includes two Triple A tranches – $ 248 million and $ 20 million – and the equity tranche, which is 123, $ 6 million, one of the sources said.
The CLO, whose no-appeal period expires in October, is expected to be assessed next week.
Both AGL and Barclays spokespersons declined to comment. (Reporting by Kristen Haunss. Editing by Michelle Sierra)