Ramius Capital Group's par loan group is looking to invest in more on-the-run, publicly-rated, liquid par loan term debt. Since its inception last year, the firm's par loan group has focused on illiquid, unrated, middle-market loans. But Neil Rothenberg, a managing director and portfolio manager of the par loan group, explained that Ramius is a relative-value loan buyer and at this point in time the risk/reward package offered in the liquid loan market is the best opportunity.
Ramius is aiming to grow its par loan operations to 7-10% of the firm's $3.5 billion portfolio. Rothenberg said over the last year the firm has acquired roughly $50 million in both illiquid and liquid par loans, leaving "a lot of dry powder" to be invested. The change in strategy comes as middle-market loans, those to companies with less than $50 million in EBITDA, are increasingly structured with "equity risk for debt return," noted Rothenberg. Recently, a large inflow of middle-market lenders, from specialty finance companies to banks, has created a dynamic where deals are being structured with increasing senior leverage without the appropriate pricing, he added. Rothenberg does not see the same trends in the liquid loan market. The trade-off for less yield is less leverage and more liquidity.
Ramius does not experience the same kind of pressure as other par loan investors to put its cash immediately to work in a market that some investors already view as being overheated, Rothenberg said. The firm is a diversified private management firm so if the cash is not being put to work on par loans, it will be employed elsewhere. This gives the par loan division the luxury of cherry picking the loans for its portfolio as does the ability to invest in both liquid and illiquid loans. The group can also invest in mezzanine loans and second lien loans, also called last-out-tranche loans or "stretch" senior loans.
The term "stretch" comes from the structure of the loan as the senior leverage is stretched another half time, giving the borrower more capital and the lender the option to invest in a riskier loan for a slightly higher rate. The par loan group is also not bound by diversification covenants and restraints of other par loan investors.
"Ramius intends to hire at the senior levels as the portfolio builds," Rothenberg noted. These positions will be filled by senior credit professionals with at least five years of experience. Ramius Capital is named after the Captain First Rank Marko Ramius, captain of the Soviet submarine in Tom Clancy's novel, "The Hunt for Red October." Ramius was played by Sean Connery in the film adaptation of the novel.