Highland Increases Pro Rata Investment

Highland Capital Management is significantly increasing the size of its second pro rata collateralized loan obligation, called Valhalla.

  • 23 Jul 2004
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Highland Capital Management is significantly increasing the size of its second pro rata collateralized loan obligation, called Valhalla. A loan investor said the deal could be increased to $800 million, after being originally slated for $600 million. Highland is raising this second fund only months after completing the $550 million Bristol Bay CLO. A buysider said equity investors unable to participate in the first deal drove demand for the second. A Highland official declined comment.

Citibank arranged the first CLO and is also leading the latest vehicle, which uses synthetics to invest in revolvers and "A" loans. A Citibank spokesman did not return calls. Citibank worked with asset-management firm TCW last year to develop the structure, which enables institutional accounts to buy pro rata loans (LMW, 2/2/03). Since then Citibank has raised similar deals for PIMCO and Prudential Investments. Previously these loans were considered unattractive and unsuitable for non-bank investors, because they are partly unfunded.

This means the cost of the liabilities in a normal cash-flow CLO are too expensive to fund the investments, but Citibank found a way around this by issuing a super senior unfunded tranche. The issuer synthetically invests in an actively managed portfolio of pro-rata loans. The issuer then enters into a swap agreement with Citi, whereby the bank will be the buyer of protection on the portfolio of revolvers and term loans. The equity and then the funded notes take the first losses.

 

  • 23 Jul 2004

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 4,755 19 11.75
2 Citi 4,288 14 10.60
3 Rabobank 2,633 4 6.51
4 Goldman Sachs 2,615 4 6.46
5 Barclays 2,603 8 6.43

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 74,831.87 212 13.30%
2 Bank of America Merrill Lynch 65,702.99 205 11.68%
3 Wells Fargo Securities 55,583.74 178 9.88%
4 JPMorgan 40,793.11 141 7.25%
5 Credit Suisse 30,239.23 97 5.38%