GSC Partners, formerly known as Greenwich Street Capital Partners, is looking to buy assets to wrap up a new collateralized debt obligation backed by middle-market bank loans. The vehicle, known as Gemini Fund Ltd. 1, reportedly is structured as a cash-flow arbitrage deal comprising a $436 million triple-A tranche, a $20.8 million A1 piece and a $40.2 million Baa1 tranche. The $26 million in preferred shares issued were not rated. The vehicle is more than 80% ramped up, with the remaining ramp-up period extending no later than the end of January 2003. Calls to officials at the firm were not returned.
There has been a growth in CDOs backed by middle-market loans, according to Gus Harris, a managing director in the derivatives group at Moody's Investors Service. He declined to comment specifically on the Gemini vehicle, but he said Moody's has rated six or seven deals this year and expects the figure to be in double digits by the end of 2002. Though such vehicles are relatively new, preliminary results indicate they are doing well, he noted.
One reason for the growth has been the pullback of commercial banks from middle-market lending, offering an opportunity for specialty lenders, Harris explained, adding that the leveraged vehicles are a more efficient way to use capital. In 1999, there were 110 cash-flow lenders in the middle market but, as of last year, only 34 remained, according to Banc of America Securities data. Merrill Lynch Capital, Dymas Capital, Madison Capital Funding, Royal Bank of Scotland and RBC Leveraged Capital are just some of the new lenders looking to fill the void.