Cigna Investments has closed on a new $350 million leveraged loan fund that uses a similar structure to Banc of America Securities' SERVES transaction. The deal is a synthetic collateralized loan obligation, called Trumbull Rated Loan Fund 2003-1 whereby Cigna has issued notes that will be invested in cash and senior bank notes rated at least AA-. The notes issued are $31.325 million of amortizing notes and $21.875 million of income notes rated A and BBB, respectively, by Fitch Ratings. There is a preferred slice in the region of $2 million.
The fund will pledge collateral to enter into a total return swap program consisting of a series of total return swap transactions with TD Global Finance that reference a diversified portfolio of BB and B leveraged bank loans. "The [leveraged] loans are well on the way to being completely purchased," said a source. He added it is a diversified portfolio with a low ceiling on telecom and cable names. "In the last six months, media, publishing, the non-cable part of cable and general industrials have been good buys," he said.
Through this structure, the noteholders will receive the benefit of the reference loans on a leveraged basis of over six times, he said. Typically in this type of transaction this amount of leverage is required to make economic sense. The loans then typically reside on the sponsor's books--not Cigna's, he added. The loans will pay out a spread that should cover TD's costs and then the excess spread pays the noteholders and the manager. The structure is very similar to Cigna's previous Times Square CLO led by TD, said an analyst. "Same ballpark as SERVES, but even closer to the old TD deal," the source said. Mike Bacevich, a portfolio manager at Cigna was traveling and could not be reached by press time.
"[Cigna] has had tremendous success with the last [CLO]. It was able to get investors comfortable with the structure," said the source, explaining why Cigna opted for this structure over more plain-vanilla options. Cigna has two $400 million loan vehicles already under management. An official at TD did not return calls for comment.