Hartford Investment Management went with Citigroup for its latest market-value loan fund, the $362.5 million Bushnell Loan Fund CDO 2004, won over by the firms' aggressive approach to the structured swaps and total rate of return business and keen on the market-value structure.
"We think that, due to a combination of a benign default environment and attractive new issue volume, this is an excellent time to be ramping up a new transaction," said Mike Bacevich, who heads up Hartford's bank loan team. "Reverse enquiry from investors in our Trumbull CLO, a 2003 vintage market value deal, led us to engage Citibank to essentially reprint a similarly structured CLO," he added.
Hartford went with Citigroup because Toronto Dominion, which structured and distributed the Trumbull CLO, has exited the business, Bacevich stated. Meanwhile, Citigroup is ramping up its structured swap and total rate of return business and has taken over the swap financing for Trumbull CLO, which was completed last year (LMW, 5/11/03). A TD spokeswoman could not provide comment by press time. This is Hartford's first CLO, but the fourth managed by Bacevich and his team, which recently moved from Cigna Investment Management (3/26).
Explaining why Hartford opts for this type of structure, he said, "We like the transparency of a market-value deal. In addition, we are very active traders in the secondary market. The market-value structure allows us to trade without restriction, whereas a cash flow deal has more limits on trading activity."
The structure calls for Citigroup to issue approximately $58 million of triple-B and single-A rated notes and the fund is then levered six-and-a-quarter times through total rate of return swaps. "The vehicle is 50% ramped up. One of the benefits is the swap financing gets layered on as you buy a loan." You only pay for the financing as you purchase the loans so were not pressured to ramp up quickly and can take a more disciplined approach to asset selection, Bacevich noted.
Murry Stegelmann, who runs Kilimanjaro Advisors, a money management firm based in Connecticut that invests in credit products including bank loans, bonds and private placements, agreed that Citigroup is making a push. He added that not only is the firm aggressive compared to its peers, the TRS group also provides high-end customer service. Earlier this year, Citi set up a total rate of return program for Kilimanjaro rather than just providing individual swaps. Another major advantage for Kilimanjaro, which has an appetite for distressed assets, is flexibility. "Most banks say B- or above, whereas Citi is more flexible in allowing me to do lower-rated credits." The TRS group is run separately from the loan trading desk, though the desk provides color on individual credits. Citi bankers did not return calls.