Highland Capital Management's acquisition of the bank loan asset management business of Columbia Management Advisors from Bank of America is largely driven on the Columbia side 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.
The 40 Act was not a big problem when the mutual funds were unable to buy just Fleet loans, but a combined Fleet/B of A creates a bank loan behemoth that represents too significant a chunk of the leveraged loan market to avoid, the source said. The anti-affiliation rules came into effect for B of A loans when the merger went through, said sources. This presents a big opportunity for Highland, which has been looking to expand through acquisitions for some time and will enable Highland to have a retail loan presence.
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 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 still 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 2002 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 or where Good and Fellows will land.
The acquisition will not impact Flagship Capital Management, which was a subsidiary of Fleet and now B of A. The loan management unit is focused on CLOs. Officials at Flagship declined comment.
Highland, the world's second largest leveraged loan asset management firm with $8 billion in leveraged loan assets prior to this transaction, 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. Terms were not disclosed.