Highland Capital Management increased the size of its second pro rata collateralized loan obligation, called Valhalla, to $900 million--some $300 million more than initially planned. Highland raised the fund only months after completing the $550 million Bristol Bay CLO, which also invested in pro rata loans.
"The ultimate size of the deal was a balance between market demand and our ability to source attractive investments," said Jack Yang, a partner at Highland. Already $775 million of assets have been bought for the portfolio, which will invest in revolvers and "A" loans. "The initial plan to do a pro rata structure was taken in the fall of last year," Yang said, explaining that secondary bids for pro rata loans are still below comparable term loans. "There are still fewer players that can buy revolvers as opposed to term loans and we believe having increased capability to buy revolvers is a complement to our existing portfolios and capabilities," he added.
Citigroup arranged both vehicles and is the only bank which offers a CLO that can exclusively invest in pro rata loans. The vehicle uses a hybrid synthetic structure to invest in the revolvers and "A" loans. Citi issued a $634.5 million super-senior tranche and $183.5 million in lower-rated notes. There is also $82 million in income notes. Highland has co-invested in the equity.