Consolidation among managers of collateralized loan obligations has slowed considerably, and not just because so many smaller players have already teamed up with larger ones.
Instead, many smaller CLO managers are finding they don’t need the deep pockets and wide reputations of bigger players to bring new deals to market.
“A few years ago, there was a question if [some smaller managers] had the ability to build deals,” Christopher Allen, senior managing director at CVC Credit Partners, told attendees at IMN’s industry conference.
CVC Credit Partners was formed last year when European private equity group CVC Capital Partners Group purchased Apidos Capital Management from Resource America.
But recently, Allen said, CVC was in talks to acquire a CLO manager that stopped because the manager was able to issue a CLO on its own.
“The market has opened to both existing players and to new platforms,” Allen said. That means “there’s not as much motivation to sell.”
This logic works both ways: Allen said CVC has also backed out of talks to acquire a CLO manager because the firm realized it would be better off launching a CLO itself.
Among CVC’s most recent deals is the $500 million Apidos CLO XII, according to rating agency presale reports.
There’s another reason merger and acquisition activity among CLO managers has slowed, according to Michael Herzig, managing director, THL Credit Senior Loan Strategies and another panelist at IMN’s conference: buyers aren't as motivated either.
Herzig said that in 2009, 2010 and 2011, “there was pressure to add credit to platform, to have more products than private equity… So acquisitions were partly about adding to product suite. There was a little meeting of the minds: a motivated buyer and a motivated seller."
There’s less pressure to make such strategic acquisitions now, Herzig said. This makes acquisitions “tougher to do,” since they have to make more economic sense.