Katonah Debt Advisors is preparing to launch a middle-market fund and the firm is currently interviewing a candidate to serve as the portfolio manager, said Chris Lacovara, a principal at Kohlberg & Co., which owns Katonah. "It is something we have been looking at for a while," he said. "The middle-market product has attractive spreads relative to the syndicated loan market. There appears to be demand among CLO investors because many already have a good exposure to the syndicated loan product, but less exposure to the middle market."
Lacovara said the portfolio manager Katonah is interviewing is someone with 15-plus years experience in middle-market lending, but he would not name the person because they have not signed a contract. "Our focus is getting someone who has a long track record in lending and credit, and has been through a lot of cycles," Lacovara said. He stressed that there are no key-man provisions in Katonah's new funds and that was not the reason for the hire. This portfolio manager will have responsibility for the middle-market vehicles. Additional hires are expected, including another senior credit player and an analyst.
The middle market is an area Lacovara said is a natural choice for Kohlberg & Co. because of the private equity group's experience in the space. He said Kohlberg has structured and raised more than $6 billion of middle-market debt to finance more than 40 leveraged buyouts and numerous add-on acquisitions for its portfolio companies since the firm's founding in 1987. "We think it plays to Kohlberg's strengths in the middle market. We know that market very well and have deep contacts," he said.
Once a portfolio manager is chosen the firm will begin putting together its first middle-market CLO. Lacovara would not comment on which bank will work on the deal, but said it has received a number of proposals and hopes to mandate one in the next couple of weeks. He said the firm is planning to launch at least one middle market deal a year, but said it would depend on market conditions.
Katonah is also preparing another CLO, Katonah 8, that Goldman Sachs is underwriting. E.A. Kratzman is the portfolio manager and remains the sole portfolio manager responsible for Katonah CLOs investing in syndicated loans and bonds. Lacovara said the firm is far along in the warehouse process and hopes to start marketing it soon. The target is for the CLO to be in the $400-450 million range. He wouldn't go into specific details, but said the structure would be similar to that of Katonah 7, which closed in the fall. The CLO will continue to be focused on syndicated loans with a basket for second liens and other structured products. According to a Standard & Poor's Presale report, Katonah 7 consisted of at least 90% senior loans and a maximum of 10% second liens.
The plan is to build the business to have $2-3 billion of assets under management in the next three years. Lacovara said that could be through liquid loan CLOs, middle-market CLOs or other structured credit products the firm is looking at. He would not elaborate on other ventures.
