MUFG plans project finance, aviation CLOs

Spurred by investors’ reach for yield and the drive to more off-the-run assets, MUFG is taking advantage of its expertise in project finance and CLO structuring, preparing a rare project finance CLO and another backed by aviation assets.

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“In the CLO market, it’s not about what happened yesterday, but rather about what’s going to happen tomorrow. We are constantly in discussions with our clients about alternatives for diversifying their portfolios and achieving their desired objectives,” said Asif Khan, managing director and head of CLOs at MUFG. “Toward that end, we will be leading new CLO product offerings backed by project finance and aviation assets.”

The Japanese bank is working on structuring a CLO backed by infrastructure and project finance debt managed by Starwood Capital and plans to arrange the deal in the next two or three months, according to three sources familiar with the matter.

The CLO backed by aviation assets, meanwhile, is tied to MUFG’s acquisition of DVB Bank’s aviation finance lending portfolio.

“When it comes to CLOs, innovation is key for arrangers in differentiating their value proposition,” said Khan. He said that the play is to distinguish the bank from its US competitors in the space by offering new solutions and broadening the use of the CLO format to include assets other than the usual leveraged loans that comprise the bulk of CLO collateral.

A representative for Starwood did not respond to request for comment by press time.

MUFG helped pioneer the applicable margin reset (AMR), an alternative method of repricing CLOs developed with Sancus Capital Management and used for the first time at the end of January to reprice bonds from a deal managed by TCW.

Project finance CLOs are not new, though they are rare. In 2017, a Deutsche Asset Management subsidiary worked on an early project finance CLO, dubbed RIN. The subset of the CLO market has been mostly quiet since then.

In a year projected to see as much as a 20% drop in CLO issuance and more stress in the form of leveraged loan downgrades, managers and investors say they are looking to broaden the scope of the market and pump up returns.