INVESCO Senior Secured Management is the latest firm to raise a collateralized loan obligation that invests in pro rata loans. The $400 million deal is called Skytop CLO and will be 62.5% ramped up by time of closing later this month. Citigroup invented the pro rata CLO structure with TCW back in 2002, and is again underwriting this deal, said an analyst, who stated that no other bank has mimicked the technology for loan deals, though it has been adapted by another bank for a different asset class. INVESCO officials did not return calls.
The CLO is a hybrid of a cash and synthetic CDO. It is in the form of a partially funded total rate of return swap where the issuer sells protection to Citigroup. The issuer pays Citigroup a funding fee and the bank is also the holder of a super-senior tranche. This is $295 million for Skytop. The bank funds the revolving loans when required. The structure allows loan managers to buy revolvers and "A" loans because it avoids the negative carry on assets that are only partially funded.
Highland Capital Management was the last loan firm to raise a pro rata CLO vehicle (LMW, 7/23). Other firms that have also used the structure includePIMCO and Prudential Investments.