Deerfield Capital Corp. and CIFC have closed their merger. The new firm will now be called CIFC Deerfield Corp.
One of the first things on the newly combined firm's agenda is creating a CLO, according to Peter Gleysteen, Deerfield chief executive officer said.
"We're planning this CLO based on what we see as a strong degree of interest from the marketplace," Gleysteen said. "We have started working on it, but these things always take a couple of months and would depend on market conditions."
Gleysteen believes they have good timing since there is "very positive investor interest, although it remains a little slow in terms of loan issuance." He also has confidence that overall activity in the LBO and M&A sectors and in other industries have created opportunities after the "incredibly deep wrenching crisis that we endured," he said.
He added that there has been strong interest in the four new CLOs that have come to market. However, he said that there is a reduced level of investor capacity. "The amount of dollars is small compared to what it was prior to the crash, over 2006 and 2007," Gleysteen said. "This means that only the very best managers will likely have access."
The new CLOs, he said, are very attractive since they contain current vintage loans that have very high credit quality from companies that withstood the recession. "The yields on these loans are two times the average or higher those of the last two years," he said. "This is terrific relative value and also in terms of absolute returns."
Aside from the reduced level of investor interest, there's also the specter of regulations that might nip the re-growth of the CLO market in the bud.
"The regulations were preliminary focused on ABS CDOs, which securitIzed generic asset classes, where valuation is based on top-down quantitative modeling and did not require active management," he said. "This contrasts with CLOs that comprise loans from a diverse array of individual, and transparent real companies with tangible assets. The contrast couldn't be more striking."
Regulations to date, he said, have not made this distinction. "I am not counting on a perfect outcome, but at least a better one with the Fed involved to make sure that inappropriate and unintended consequences don't result from these regulations," Gleysteen said. "It would be bad for the loan market, for the economy, and both for corporate borrowers and banks since it would limit their ability to originate loans."
In terms of the merging of Deerfield and CIFC, the scale gives the combined company, which together manage 30 CLOs, "strong prospects for growth both in terms of CLOs as well as other funds," Gleysteen said.
It will also offer opportunities, such as the chance for consolidation. "It's a terrific opportunity and unlike other consolidation deals, with this merger all the resources stay in the company and not get transferred out of the manager like other firms."