Highland Capital Management is buying the bank loan asset management business of Columbia Management Advisors from Bank of America, with the transaction largely driven by the Fleet Bank/B of A mega-merger. According to a source, Columbia's mutual funds business, which was affiliated to Fleet, was restricted from buying loans originated by Fleet under the Investment Company Act of 1940. This was not such a big problem when the mutual funds were unable to buy just Fleet loans, but a combined Fleet, B of A merger creates a bank loan behemoth that is too significant a chunk of the market to avoid, he said. Columbia has $2.7 billion in assets under management, $1.4 billion in mutual funds and $1.3 billion in collateralized loan obligations. Structured vehicles, as private transactions have less restrictions on buying loans, the source said.
A Columbia spokesman said the merger creates more of a disadvantage, but he referred questions to Jack Yang, head of business development at Highland. Yang did not return immediate calls for comment. Columbia's board of trustees has approved Highland to be advisor for the floating rate mutual funds under interim agreements, according to a joint statement. But the source said there are four CLOs that will need the consent of debt and equity holders to transfer management to Highland. He added that Highland has a good reputation for delivering high returns to equity holders and the expectation is that the structured funds would go with them. Another source said the four CLOs, have varying degrees of consent required with only the most recent Aurum CLO having significant consent requirements.
Portfolio managers Brian Good and Jim Fellows are leaving Columbia to pursue other opportunities, sources said. This still leaves approximately 15 other members of the bank loan team based in Chicago. It could not be determined how many of the staff will be hired by Highland.
Highland, the world's second largest leveraged loan asset management firm, hired Yang, the ex-global head of leveraged finance products at Merrill Lynch, last year to grow the business through potential acquisitions of asset management firms and new products.
"This acquisition is a perfect growth complement to Highland's existing platform. It significantly advances our firm's retail business activities and provides additional scale to our existing leadership position in leveraged loans," said Jim Dondero, Highland's president. "This transaction makes Highland's industry leading performance in loans available to the public for the first time."
Terms were not disclosed. Cambridge International Partners acted as financial advisor to Highland.