LightPoint Capital Management, a Chicago-based shop formed in April by five former ABN Amro leveraged finance bankers, is on the road raising equity for its first collateralized loan obligation. Tom Kramer, senior managing director and ceo, said he was talking to investors in Europe last week in an effort to raise the $20 million equity piece for the $400 million cash-flow arbitrage vehicle. He added that he has already spoken to a number of potential investors in the U.S., as well as some from Asia.
The CLO, called LightPoint CLO I, will comprise 90% leveraged loans and 10% high-yield bonds. The firm is targeting large corporate loans with an average credit profile of Ba3/BB-, Kramer noted, adding that the loans will represent all sectors of industry in an effort to diversify exposure to any one sector. In a market that has not been kind to CLOs of late, Kramer said he and his colleagues bring a unique skill set to the table, having spent more than 15 consecutive years working in the leveraged finance business.
LightPoint has identified a full portfolio of assets it desires for the CLO and has begun purchasing them, Kramer said. He expects to send the CLO to the rating agencies just before Labor Day and have the first closing by mid- to late September. ABN Amro and LINKS Securities have been hired as co-placement and structuring agents.
The vehicle has several interesting structure points. First, it holds an interest reinvestment test, which Kramer said gives LightPoint the ability to divert cash flow from interest to help preserve par. Second, the vehicle will have an amortizing double-B tranche, thus bringing down the weighted average cost and increasing the arbitrage. And last, it will have a lower upfront fee structure, allowing the firm to leave more money in the deal for the purchase of assets, he noted. Although none of these tools are new, Kramer said he believes LightPoint is the first to try them in combination.
