Citigroup is in the market with a $400 million collateralized loan obligation for middle-market specialists Antares Capital Corp. The CLO is called Navigator and will target a mix of middle-market and broadly syndicated loans in equal measure, a source said. There will also be a small mezzanine bucket. Antares, a Mass Mutual Financial Subsidiary, originates, syndicates and invests in middle-market loans. Officials at Antares declined comment.
"Antares is one of the most experienced shops in this area," said the source. A part of the strategy is to buy into deals that are being originated, he added. Another source explained that Antares will earn management fees on the very type of loans it syndicates. The notes for Navigator are likely to be priced in the fourth quarter. The availability of collateral, so that the deal is approximately 75% ramped up when the notes price, and the cost of liabilities are the main factors influencing the timing of the notes issuance, he said.
Middle-market loans are often priced wider than broadly syndicated loans, with less volatility in the spread. The default rate and the cost of the liabilities is also comparable, a loan manager noted. But it is a small market compared to the larger syndicated loans, which is why the expertise of the management is crucial, sources said. Still, the middle-market area is attracting growing interest. Last year Cerberus Capital snared a team of ex-Heller Financial pros to form Dymas Capital, while Merrill Lynch also created a middle-market financing arm. Denali Capital, meanwhile, recently issued its third middle-market CLO.
The last Antares deal was the Mariner CDO 2002, which also invested equally in middle-market and broadly syndicated loans. Citi also led this transaction, a strong factor in being selected to lead the new deal, the first source added. Prior to Mariner, the firm completed Antares Funding, a $600 million CDO that invested two-thirds in loans and one-third in bonds, and NOVA CDO 2001, which invested two-thirds in bonds and one-third in loans. The firm has approximately $1 billion in loan assets under management in CDOs and $1.2 billion of loans managed on the balance sheet.