Stone Tower Capital is attempting to raise the debt for its debut collateralized loan obligation, which will be composed of up to $300 million of secondary market leveraged loans bought from Credit Suisse First Boston. CSFB is also the lead underwriter for the deal, said to be structured as a static pool with no re-investment options and a short tenor of approximately three-and-a-half years. The manager will be able to sell problem loans. "It's very compelling, very different and very interesting," said one loan market source.
Most CLOs buy the collateral when the deals are in syndication or recently issued. "Stone Tower would prefer to have a more seasoned portfolio that has a shorter weighted average life and the possibility for upside," said one official familiar with the plans. The source said the CSFB-originated collateral will be term loans and revolvers, with the structure designed to overcome the liquidity problem of buying revolvers. A synthetic credit-linked note referenced to the revolver terms could theoretically solve this problem, he said, but he declined further comment on the structure. A major advantage for CSFB is that it is able to move loans off the balance sheet, he added. Mike Levitt, chairman of Stone Tower and previously a partner at Hicks, Muse, Tate & Furst, formed the asset management shop last year after 20 years involved in leveraged buyouts (LMW, 1/12). Levitt did not return calls for comment on the prospective CLO.
One buyer of CDO paper said it is "the most interesting deal I have ever seen. It will be a home-run if it is successful and you would replicate [it] anywhere you manage leveraged loans." Jerry DeVito and Alan Mentle, co-heads of the leveraged finance CDO Group at CSFB, also did not return calls. An official on the secondary loan desk declined comment as did a CSFB spokesman. Greg Stover, who previously was at CIT Capital, and Robin Beckett, who was at Citibank, are the senior credit analysts at Stone Tower based in New York.