Canyon Capital Advisors is close to raising its debut collateralized loan obligation after previously managing bank debt through hedge funds and separate accounts. Canyon has been a major buyer of loans in the past and has about $1.3 billion of bank debt under management, a source said. But the firms’ only previous CDOs have been two high-yield bond deals. He added that in total, the L.A.-based firm has about $5.3 billion in debt and equity securities under management. “They have great credit expertise,” said the source. Lehman Brothers is marketing and leading the notes for the $400 million CLO. Mark Zusy, a Lehman CDO banker, and Canyon officials declined comment.
The deal is slightly unusual in that it will target B1/B2 loans, whereas most CLOs target a slightly higher credit range. “They look at some unique assets,” the banker commented. In order to accommodate the strategy, there is more equity in the deal—about 10% rather than the 6-8% equity that is more typical—he added. The WARF is in the region of 2400-2500 and pricing is anticipated to be in line with other recent CLO transactions. Canyon’s two high-yield bond deals have never been downgraded.
Michael Leyland and Dominique Mielle are the point people for the transaction. The managing partners at the firm specializing in credit include Chris Evensen, Josh Friedman and Mitch Julis who together founded Canyon in 1990. They were all senior members of Drexel Burnham Lambert.