INVESCO Senior Secured Management (ISSM) plans to close a synthetic CLO early this month, referencing $500 million in high yield bank loans through a series of total return swaps. The deal, Hudson Canyon Loan Fund, is being arranged by Citibank, which is also the protection buyer. LaSalle Bank is the trustee on the transaction.
Hudson Canyon is INVESCO's first CLO using the TRS structure, which allows for greater access to the loan market since the assets are referenced synthetically, said Alla Zaydman, senior director at Derivative Fitch. The structure is typical of other TRS CLOs, although the deal utilizes excess spread more so than subordination to achieve credit enhancement and pay down the notes, Zaydman said.
Collateral for the notes is being provided by six-year senior bank notes rated at least AA-' by Fitch, AAA' rated floating-rate credit card securities, eligible money market funds, and cash earning interest at the federal funds rate.
The maximum amount of senior bank notes and asset-backed securities is 80% of the initial notes issuance.
Simultaneously, Hudson Canyon will enter into a series of total return swaps with Citi that will reference a diversified pool of primarily B' and B+' rated U. S. senior-secured bank loans. Calls to Citigroup were not returned by press time.
The $500 million reference portfolio is expected to ramp up over a six-month period from the closing date, with reinvestment in additional loans to occur throughout the seven-year reinvestment period, according to presale report from Derivative Fitch.
The swap structure is expected to provide the security holders with 6.25 times leveraged return on the yield of a maximum $500 million in senior secured bank loans, Fitch said.
Currently ISSM manages more than $8 billion among 10 U.S. CLOs and other moderately levered funds and accounts, Fitch said. The firm also has four additional CLOs managed by its European counterparty worth approximately $1.6 billion.
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