Los Angeles-based Centre Pacific has embarked on a leveraged loan warehouse line with Citigroup shortly after completing its first synthetic investment-grade CDO, a $1 billion single-tranche deal called Cascade CSO. The leveraged loan warehouse is comprised of typical term "B" paper, but one advantage is that the deal will not necessarily be securitized, said David Gold, managing director and portfolio manager for Centre Pacific. "What's attractive about the facility with Citi is that it's an evergreen not tied to a CLO, which gives us the flexibility on issuance timing," he said, declining comment on the size of the vehicle.
"The facility is in a total return swap format, which generates a return on the arbitrage between the facility funding cost and the yield on the portfolio collateral," he explained. The leveraged loan management effort at Centre Pacific is led by portfolio managers John Casparian and Kevin Hickam.
The loan warehouse comes shortly on the back of the recently completed debut synthetic CDO. Cascade CSO has a notional size of $1 billion, with a typical investment-grade portfolio of 100 reference entities with an average rating of Baa2, Gold said. Additionally, "The actively managed deal has substitution capabilities," noted Gold. He explained that the Centre Pacific team had experience of managing investment grade deals while at Transamerica Investment Services and so wanted to expand the firm's product offerings. At Transamerica the $45 billion in assets under management included a $23 billion investment-grade portfolio. In addition, "Technology has evolved so that with a limited investment we could gain a large exposure. Thirdly, paralleling this, the opportunity was attractive," he stated. Centre Pacific went with Citi due to a combination of structure, pricing and access to its credit default group desk.
The firm shelved plans for a high-yield CLO earlier this year as market conditions were not opportune, instead seeking to complete the synthetic investment-grade transaction (LMW, 3/30). UBS was working on the high-yield CLO called Cascade CLO, but the relationship was terminated with the decision not to go ahead with the CLO. "We felt a lack of commitment on their part," Gold said at the time.