Babson Capital has joined a growing list of money management firms starting closed-end loan funds. In Babson’s case, the fund will invest in leverage loans and high yield bonds in both North America and Western Europe.
The Babson Capital Global Floating Rate & Income Fund, which will target speculative-grade companies, will invest primarily in secured loans, secured bonds and other income-producing instruments, according to a prospectus filed with the Securities and Exchange Commission last week.
The fund will be managed by Russell Morrison, head of Babson’s high yield investment group; Zak Summerscale, who heads investment management and trading in the U.K.; and Michael Freno, a managing director.
A spokesman for Babson said the firm is unable to comment further on the fund at this time for compliance reasons.
Babson, a subsidiary of Massachusetts Mutual Life Insurance Co., joins a string of firms starting funds that invest in floating-rate securities (LFN, April 28, 2011). PIMCO, Goldman Sachs and KKR Asset Management are just a few others that have started similar vehicles this year.
This spate of new funds has been prompted by record inflows. Loan funds had taken in a year-to-date total of $14.7 billion by May 18, according to Lipper FMI, compared with $4.5 billion by the same point in 2010.
“The fund will seek to take advantage of inefficiencies between geographies, primarily the North American and Western European high-yield loans and bond markets and within capital structures between secured loans and secured bonds,” the Babson prospectus said.
The European leveraged loan market has finally come alive after a long period of stagnation (LFN, May 19, 2011). While 2011 until now has been a high yield bond story, with bonds —particularly senior secured high yield bonds — dominating the European leveraged finance landscape, forthcoming deals will feature both loans and bonds, sources in Europe said.
In an interview with Leveraged Finance News in mid-May Babson’s Summerscale noted that while the pipeline of new loan deals in Europe still consists mainly of refinancings, there are nevertheless a number of new issues coming from the private equity side of the market as buyouts increase. And new issuance will gain further momentum because of the role that private equity is playing in Europe, he said.
“We’ve seen the U.S. loan market quite strong over the past year, and now in Europe it looks as though we are finally starting to catch up,” Summerscale said. “We have raised significant amounts of cash in our institutional loan fund.”
Babson’s new floating rate and income fund may invest in both floating-rate and fixed-rate instruments, listed and unlisted corporate debt obligations, convertible securities, collateralized bond and loan obligations, bank obligations, U.S. government securities and debt issued by or on behalf of states, territories and possessions of the U.S., preferred securities and trust preferred securities, structured securities, and when-issued securities and forward commitments, according to the prospectus.