Citigroup has arranged a $600 million CLO that will be managed by Guggenheim Investment Management, according to sources.
The CLO consists of a $110 million triple-B-rated tranche, a $180 million equity tranche and a $300 million triple-A-rated tranche.
The triple-B and equity tranches are being held by Guggenheim, so only the triple-A tranche will be offered to investors. There hasn’t been any word on pricing yet, sources said.
Earlier this summer, Guggenheim was rumored to be working on a new CLO.
A spokesman from Citi declined to comment. Emails sent to Guggenheim were not returned.
The vehicle, like most CLOs that have been arranged this year, is made up of refinanced loans. However, the Guggenheim CLO will have a three-year reinvestment period, something the loan market hasn’t seen since before the credit crisis, sources said.
“Guggenheim is investing its own equity. That is, this isn’t an equity capital raise that was done via a Guggenheim hedge fund. It’s a debt placement,” said a Boston-based investor. “Since hedge funds may not find it as easy to find leverage, at least compared to good old days, this would be a way of doing same. The new CLO market might be restricted to those who can bring their own equity to the party.”
As of late last month, CLO issuance for 2010 had reached $1.5 billion, according to Standard & Poor’s. The CLOs that have been issued include the Fraser Sullivan $525 million deal, the $325 million Apollo CLO and the $450 million Doral CLO.
CLO issuance fell to approximately $26.5 billion in 2009, its lowest level in more than a decade, according to Moody’s Investors Service.
The Guggenheim deal is something of a rarity, though. According to Wells Fargo analyst Dave Preston and Zachary Bolster, the primary loan market for CLOs won’t return until at least the second quarter of 2011.
“New issuance for the remainder of 2010 should continue to feature smaller, clubby-type deals,” the analysts wrote in a report published this week. “As with the 2010 new issue deals, we expect most new issue CLOs to be slightly unique situations, such as refinancings or reverse inquiries.
Several issues hinder new issuance, but asset-liability spread (the CLO “arbitrage”) and regulatory uncertainty are the primary causes. While the regulatory issues, particularly the European and American risk retention requirements, will take some time to fine-tune and address the unanswered questions, the arbitrage concern could remain an issue.”