Denali Capital is shopping for its third collateralized loan obligation, the $400 million Denali Capital CLO III, that will target middle-market loans, a rarely tapped area in the CLO universe. Though the vehicle will tap the broadly syndicated loan market--deals over $250 million--Denali will aim for a meaningful level of middle-market loans as they offer better spreads, higher initial fees and better credit packages, according to a source. Credit Suisse First Boston reportedly is underwriting the deal, but a source said Bear Stearns was the lead. Officials at CSFB did not return calls and a Bear Stearns CDO banker declined comment. David Decker, Denali's cfo, also declined to comment on the prospective deal.
According to a Standard & Poor's report on the firm, Denali seeks investments in three loan sizes: the traditional middle-market as defined by $50-125 million deals; larger middle-market, which is $125-250 million; and broadly syndicated loans, which are those over $250 million. Broadly syndicated loans currently comprise about two-thirds of Denali's CLOs since it is generally easier to access these investments. But the aim is for at least 25% of the new CLO to be comprised of middle-market loans, the report states.
A CLO manager said the middle-market is a tough space, with a lack of suitable deals currently on offer a factor. "I don't agree with that all," countered Ken Leonard, managing director and co-head of middle-market lending shop Dymas Capital Management Co. He added there is currently fairly good activity with plenty of opportunity. Despite Denali being "incredibly successful," Leonard said there are no other firms that only buy assets. There are only competitors that originate and buy, he explained. Denali already manages two CLOs, with DC Funding Partners as the issuing vehicle. DC is partially owned by a silent investor, Mountain Line, which is an Edward Bass organization. David Killion is the ceo of Denali, while managing directors and partners Gregory Cooper and Robert Coseo source, screen and trade for Denali. John Thacker is the chief credit officer. A timeframe for the pricing of the notes could not be ascertained.