The senior management of Octagon Credit Investors is said to be increasing its stake in the company to a majority ownership position through a recapitalization after a protracted auction process that could have led to an outright sale of the business to a rival. Senior portfolio manager James Ferguson, who founded Octagon in 1994, and portfolio managers Michael Nechamkin and Andy Gordon are leading the charge, said a source. "It is being thought of as a recap, not a management buyout," he noted. "It's being done on an amicable basis." It could not be determined how much Octagon's management was chipping in to increase its stake.
Octagon is currently owned by management and J.P. Morgan Partners, which will continue to keep a material piece of the business. J.P. Morgan would sell some of its stake to management, effectively transferring a majority ownership and control to management, the source said. J.P. Morgan owns significant pieces of the equity of the CDO vehicles, but these equity investments in the Octagon series of CLOs are being sold to a third party (LMW, 3/8). It is considered very unlikely that the owners of the equity would seek to replace the manager, the source said.
LMW first reported in August that Octagon, which has approximately $2 billion in loan assets under management, could be for sale (8/31). Interested parties included other loan asset management companies and private equity bidders. An outright sale was cancelled after bids came in too low and sources familiar with the auction said there was more interest in the equity of the vehicles. But during the auction process it was indicated that one option was for a management buyout, with one source indicating Ferguson was particularly keen on this path rather than losing the firm to a rival. Octagon officials declined comment and a J.P. Morgan Partners spokeswoman did not return calls.