Callidus Capital Management has chosen Wachovia Securities to be the underwriter for its debut loan deal, the $300 million Callidus Debt Partners CLO Fund II, after being won over by Wachovia's proprietary credit-swap feature. "Wachovia is acting as underwriter, because the APEX structure was a very attractive concept. We looked at half a dozen structures, and this was the one which best fit with our theme of capital preservation, while also enabling the deal to avoid an expensive BB tranche," explained Richard Ivers, a founder and managing director of Callidus. He declined to name the other banks considered. The expense of the BB tranche reduces the overall return to equity investors in CDO deals.
The APEX structure was also recently used by Guggenheim Investment Management for its 1888 Fund. (LMW, 12/22). The structure differs from traditional CDOs in that it includes three swaps entered into between Wachovia and the fund. A credit swap will provide the difference between the sale price on discounted and defaulted credits and the par value of those credits. Wachovia underwriters could not be reached for comment by press time.
Callidus raised the equity itself for the deal from high-net worth individuals. "Most of whom invested in our existing fund Callidus Debt Partners CDO Fund I," said Ivers. The first CDO was primarily a bond vehicle with some loans, but Callidus chose to do a loan deal now because spreads in the loan market are "exceptionally attractive," he added. The fund will be 95% loans with a 5% bond bucket. Callidus began buying loans for the vehicle about a month ago. The notes will not price for another six to eight weeks, he said. Monoline insurer Ambac Assurance will wrap the Triple-A notes, considered by one loan banker, an increasingly necessary tool to completing a deal. Blackstone Debt Advisors also used the Ambac wrap for its debut deal Hanover Square (12/1). Ivers said that Callidus is using the wrap because it used one for the CDO completed last year. Scott Gordon, a managing director at Ambac, did not return calls.
Though Callidus has never managed a CLO before, the firm comprises some of the most experienced leveraged finance professionals in the business, including Ivers and co-founder Mavis Taintor, who were managing directors in the leveraged finance group at Credit Suisse First Boston. Taintor worked at Salomon Smith Barney where she was a founder of and ran the bank loan group with Ivers from 1996 to 1998. "They are pretty well regarded," said a leveraged finance source.