Babson Capital Management has taken over five collateralized debt obligations from Strong Capital Management as a result of the acquisition of Strong Financial Corp. by Wells Fargo & Co. last May. The CDOs, totaling $1.1 billion, comprise four corporate bond portfolios and one investment-grade CDO.
"Babson manages investments in CDOs for various third-party clients, as well as for affiliated accounts. We had senior and mezzanine investments in three of the five Strong transactions and so had an interest in who leads these transactions, explained Drew Dickey, managing director and head of the structured credit team at Babson.
"As an active investor, Babson has had an on-going dialogue with Strong's portfolio manager, Thomas Price since he took over as primary portfolio manager over 30 months ago. As rumors developed that Wells Fargo would buy Strong, we immediately expressed concern over who would manage the CDOs in which we had investments," Dickey said. "When Wells Fargo elected not to acquire the CDOs, a relationship already existed from our prior dialogue about the CDO portfolios that, we believe, made us a logical candidate for being successor manager." Price was traveling and could not be reached for comment.
Detailing the rationale and the advantages for taking over the CDOs, Dickey said, "The first and most important reason is our existing investments are protected. Plus this is profitable. We are taking on five CDOs that are ramped, and Babson can leverage its existing resources," Dickey said, adding, "We don't need to hire additional PMs or research analysts." Babson now manages 43 CDO funds totaling more than $15 billion.