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Lehman Scores Par Structure For Ares

Lehman Brothers has arranged a $600 million collateralized loan obligation for Ares Capital Management called Ares IX CLO that uses the bank's Par structure.

Lehman Brothers has arranged a $600 million collateralized loan obligation for Ares Capital Management called Ares IX CLO that uses the bank's Par structure. The underlying collateral will be senior secured loans, second-lien loans and unsecured high-yield. Lehman did its first Par structure last May for Putnam Investments and since then has completed two Par deals for both American Money Management Corp. andStanfield Capital Partners.Gulf Stream Asset Management wrapped up a Par deal last year and sources indicated that the money management firm is in the market with a repeat right now. A Lehman banker and Ares officials declined comment.

Par, similar in concept to Wachovia Securities APEX structure, has fewer overcollateralization tests on the triple-B notes than conventional CLOs and also removes the need to issue double-B paper adding up to more flexibility for the asset manager and cheaper financing, explained a portfolio manager. On the triple-B tranches there is a swap that guarantees interest payment for the first five years. There is also a loss replenishment account that covers losses of $10.5 million. The deal is well suited to manage through the credit cycle, the manager said.

What also differentiates this CLO from most of the other deals in the market is the significant basket for non-traditional loans, said the buyside source. Most CLOs have the option for up to 10% of the assets to be in non-loan collateral, but Ares IX can be up to 25%.

The overall weighted average cost of the financing on the deal is below LIBOR plus 40 basis points, said a source. The equity piece is $40 million. Lehman Brothers created three triple-A tranches. A $321.25 million A-1A tranche that has a maturity of 8.3 years and a spread of LIBOR plus 27; a $75 million A-1B tranche that priced at LIBOR plus 24.5 basis points and an $18.75 million A-1C tranche that priced at LIBOR plus 34. The B and C were essentially tranched into one leading a weighted average financing of 26.4. There is also a $50 million revolver that is priced at LIBOR plus 34. Lehman Brothers previously arranged Ares VI for the L.A.-based manager, which now has $6.6 billion in assets under management. Portfolio managers David Sachs and Seth Brufsky will manage the investments.

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