Ares Management, the Los Angeles based asset management shop associated with Apollo Advisors, is in the market with a new collateralized loan obligation and is also in the process of raising a distressed debt and growth private equity fund in the region of $750 million to $1 billion. Ares is raising the debt for its fifth CLO, called Ares VII, according to a portfolio manager familiar with the CDO market. The shop has nearly $3 billion in assets under management, including more than $1.2 billion in bank loan assets.
Deutsche Bank is the underwriter for the deal that is expected to be in the $300-500 million range and invested exclusively in bank loans, according to the source. The CLO will continue a longstanding relationship with Deutsche Bank that started with Bankers Trust being the arranger of Ares' first two market value deals and Ares III, said the source.
Current market conditions for selling CLO paper are being affected by geopolitical events, Enron Corp., WorldCom and downgrades. That has affected Triple-A buyers, one portfolio manager said. Spreads have widened out, but on a historical basis they have been this wide before. Importantly the arbitrage is there, he added. What is occurring though is a binary market that enables established managers to raise debt at a certain cost, but other managers are not able to raise debt at all, he said. Katonah Capital Management, HarborView Asset Management and Oak Hill Advisors are the only managers to price deals this year as Loan Market Week went to press. Ares' portfolio managers David Sachs and Seth Brufsky, are considered by Fitch Ratings in a recent report on the firm to have significant experience and have established a solid track record during their respective tenures with Ares. Sachs declined to comment on both the CLO and the new fund citing securities law.
Ares has had a corporate opportunities and distressed group since 1997 that has made investments on behalf of Ares' CDOs. But this new deal will be Ares' first unleveraged fund, the source said. The first closing was last summer and the fund will be completing another closing this quarter. Approximately half of the fund has been raised, the source noted. Several investments have been committed to, he added. Investors in the fund include the typical private equity investors such as public and private pension funds and college endowments.