The Carlyle Group isn’t the only market player seeing opportunity in adversity. In a move that might seem counterintuitive, in light of conditions in the European CLO market, 3i Debt Management is buying the majority of Invesco’s CLO business in the region.
The sale includes the management contracts for seven of Invesco’s eight European CLOs, vehicles with roughly €2 billion in assets primarily invested in subinvestment-grade debt issued by European companies. The terms of the agreement were not disclosed.
The transaction increases 3iDM’s assets under management to €6 billion and builds on the company’s strategy to grow its business in both Europe and North America, the firm said in a statement.
“This transaction ensures we are well-placed to capitalise on future opportunities,” Jeremy Ghose, managing partner and 3iDM CEO, said in the statement. “We continue our search for a U.S. platform in line with our strategy of playing a leading part in the consolidation of the debt market.”
Ghose was not available to discuss the firm’s strategy further by press time.
For its part, Invesco said the proceeds of the sale will be used to support its new issue CLO business in the U.S. and non-CLO loan funds in Europe.
“We strongly believe that we have greater and more immediate opportunities for CLOs in the U.S. marketplace,” Greg Stoeckle, head of Invesco’s bank loan business, said in a statement. “Post transaction we will continue to manage 16 CLOs totaling $5.3 billion in assets under management.”
The U.S. CLO market has been on a tear so far this year. Year-to-date volume now stands at roughly $14 billion, according to RBS, (see chart below) compared to roughly $12.6 in all of 2011. Though we very well could see a slowdown, as we did last year, as U.S. markets are once again affected by news out of Europe.
Meanwhile, the European CLO market has had no new issuance since the financial crisis and expects none anytime soon, due to intense regulation and unfavorable macro-economic conditions. Indeed, European issuers have been coming to U.S. investors in large numbers, borrowing $14.43 billion in the U.S. leveraged loan market so far this year, compared to $11.23 billion for all of 2011, according to Thomson Reuters LPC.
All that said, 3iDM is not alone in its acquisition strategy. In February, Carlyle bought the management contracts of four European CLOs with total assets of €2.1 billion, from Highland Capital Management for an undisclosed sum.
The deal brought Carlyle’s CLO assets under management to $16 billion, $10.5 billion of which the firm had added since August 2010, through the acquisition of funds or management contracts from Highland, Stanfield, Mizuho, Foothill and Churchill and through the launch of a $507 million CLO of its own in 2011.
Since then, the firm has printed a $510 million CLO, dubbed Carlyle Global Market Strategies CLO 2012-1, and it has reportedly been on the market with its second deal of the year, the $513.35 Carlyle Global Market Strategies CLO 2012-2. Pricing on that transaction was expected on Friday, June 1, after Leveraged Finance News headed to press.
But the Highland deal marked Carlyle’s first CLO purchase in Europe. At the time of the acquisition, the firm declined to discuss its strategy further with Leveraged Finance News.
Highland opted to sell the four CLOs because it did not have the economy of scale to make the European structured finance business attractive in the current environment, according to a person familiar with the situation.
Highland retained its U.S. CLO assets, which, along with the firm’s other strategies, total $20 billion. In a statement similar to Invesco’s, president and co-founder James Dondero said the firm intends to continue growing its U.S. CLO business while looking at other kinds of investment opportunities in Europe and in emerging markets.
Invesco’s bank loan team employs 29 professionals in New York, Chicago and London, and that will not change, the firm’s release said. Invesco will retain $14.5 billion of bank loan assets split fairly evenly between floating-rate mutual funds, CLOs and institutional loan funds.
3i Debt Management has a team of 30 people based in London. Following the acquisition, it will manage a total of 17 funds across CLOs, private-equity fund of funds, mezzanine, and managed accounts, as well as the credit-opportunity fund Palace Street I.