Credit Suisse Asset Management is joining the still thin ranks of managers marketing collateralized loan obligations before regulators clarify how the Volcker Rule will impact these deals.
It appears to have found a new work-around to the regulation, which appears to put most CLOs off limits to banks, some of their biggest investors.
Madison Park Funding XIII will issue $746.04 million of notes, according to a presale report published Tuesday by Fitch Ratings. The $449 million senior tranche has a preliminary AAA’ rating. Itis being marketed at three month Libor plus 145 basis points.
The deal has a standard four-year reinvestment period and two-year non-call period.
According to Fitch, the indicative portfolio consists of 95.5% senior secured loans and 4.5% second lien loans; in other words, no bonds or other securities that would put the deal off-limits to banks under the Volcker Rule.
As with most CLOs launched since the final rule was published in December, the transaction documents for Madison Park Funding XIII contain provisions designed to address the Volcker Rule. It will not invest in bonds or other securities unless none of the senior securities issued by the deal are considered to be an “ownership interest” under Volcker or the issuer is exempt from registration under the Investment Company Act by Rule 3a-7.
Most CLOs fall afoul of the Volcker Rule for a couple of reasons: they rely on the same exemption to the Investment Company Act (Rule 3c-7) as do hedge funds and private equity funds, and is therefore considered a “covered fund” under the rule. This alone is not a problem, since Volcker allows banks to own and lend money to covered funds that are backed exclusively by loans and leases. But most CLOs have significant holdings in corporate bonds, as well as loans.
It appears that Credit Suisse hopes to skirt Volcker but relying on Rule 3a-7 to avoid SEC registration.
