Highland Plans Valhalla Revolver CLO

Highland Capital Management is targeting its second pro rata collateralized loan obligation, only months after closing on the $550 million Bristol Bay vehicle.

  • 12 May 2004
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Highland Capital Management is targeting its second pro rata collateralized loan obligation, only months after closing on the $550 million Bristol Bay vehicle. A source said Citibank is now bringing a $600 million deal called Valhalla to the market for the Dallas-based asset manager. The equity investment has already been raised, the source noted. Richard Caplin, a Citibank credit derivatives banker, did not return calls. A Highland official declined comment.
 
Last month Citi priced the $585 million Dryden 6 CLO for Prudential Investments that used the same Citi vehicle. Other big name managers such as PIMCO and Trust Company of the West (TCW) have also used the structure that enables them to tap revolvers, but no other bank has mimicked the invention. There are several advantages to buying pro rata loans, primarily availability and the cheaper pricing compared to “B” loans. However, pro rata loans are less liquid and the unfunded nature of revolvers makes them unsuitable for a traditional CLO.
 
However, the hybrid cash/synthetic arbitrage structure Citi created with TCW gets around the problem of investing in revolvers by reducing the cost of capital. A super senior revolving tranche is issued that addresses the low unfunded spreads on the loans. The issuer then synthetically invests in an actively managed portfolio of pro-rata loans and enters into a swap agreement with Citi, which holds the loans on its balance sheet. The bank will be the buyer of protection on the portfolio of revolvers and term loans.

Highland also recently bought the retail loan fund business of Columbia Management Advisors increasing the assets under management to approximately $10 billion.

 
  • 12 May 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) 3,136 9 13.58
2 Citi 2,562 6 11.09
3 Goldman Sachs 2,150 3 9.31
4 Credit Suisse 1,822 6 7.89
5 Societe Generale 1,814 4 7.86

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 41,255.30 117 12.99%
2 Bank of America Merrill Lynch 37,631.92 109 11.85%
3 Wells Fargo Securities 32,082.26 89 10.11%
4 JPMorgan 20,969.41 64 6.60%
5 Credit Suisse 16,754.47 44 5.28%