Morgan Stanley is set to price this week the notes for GoldenTree Asset Management's latest collateralized loan obligation, which contains the option to buy distressed and stressed loan assets. GoldenTree Loan Opportunities Fund II will probably be $400 million, which is $100 million more than market talk, said a banker. The deal is a little under half-ramped up, he said, adding that the CLO is not highly leveraged, with an 11% equity piece. This enables the CLO, like the GoldenTree Loan Opportunitiees vehicle, to invest in par, distressed and stressed assets. Up to 30% of the deal can be for stressed and distressed assets, he noted. GoldenTree's lead loan portfolio manager, Fred Haddad, and a Morgan Stanley CDO banker declined comment until the deal closes.
Another feature that occurred on the first GoldenTree CLO, which was a mammoth $700 million, is a revolver within the deal. Up to 15% of the total deal--approximately $45 million if the deal is $400 million--is for the credit line, said the banker. This will allow the manager to invest in revolvers on a more efficient basis. The cost of the revolver when fully funded will be approximately LIBOR plus 55 basis points, which is the same as the AAA notes. But the facility fee will be 27.5 basis points. Price talk on the deal is at the tight end of recent spreads, said the banker.
According to Standard & Poor's, for par loans, management seeks a return-to-equity greater than 18%, liquidity of 85% or better, minimum issue size of $100 million, two times asset coverage, free cash flow and strong businesses with covenants. For distressed loans, the manager favors return to equity greater than 30%, liquidity of 80% or better and minimum issue size of $100 million, 1.5 times asset coverage and free cash flow. The credit agreement must protect against overleveraging should the business deteriorate.