Babson Capital Management and INVESCO Senior Secured Management have included revolving tranches in their latest collateralized loan obligations. Babson CLO 2005-I has an $85 million revolver in its $800 million deal, while INVESCO's $600 Avalon Capital 3 deal has a $50 million revolving tranche. A Babson spokesman declined comment.
Revolvers within the capital structure offer several advantages to the manager. They can mitigate negative carry on the portfolio during ramp-up and enable the vehicle to adjust leverage during the course of the deal. Revolving tranches also assist managers in being able to invest in pro rata assets.
Citigroup is arranging the Babson deal, which is slated to close next month. Reportedly the $563 million triple-A tranche priced at LIBOR plus 29 basis points. The revolver is priced at LIBOR plus 32 basis points. Babson now manages approximately 43 CDOs with over $15 billion in assets under management.