Aladdin Capital, which just closed its first CLO transaction via underwriter Banc of America Securities (BAS) in July, is ramping-up its second loan issue for the fourth quarter. According to senior portfolio manager, Gilles Marchand, the firm is leaning towards a synthetic transaction.
Although a firm mandate isn't expected until late September, BofA is tipped to lead Aladdin again, but this time using its SERVES synthetic CLO product, which would be a $400 million deal. If Aladdin goes with a cashflow structure, a $400 million to $500 million issue is likely.
For issuers looking do to a synthetic CLO, a SERVES or SEQUILS/MINCS type structure is about all that is available, although other banks might not use the BAS or JPMorgan label on the DEALS, said Marchand.
Currently Aladdin has approximately 15 credits covered by each analyst (total six). The firm has $1 billion under management, about 50% investment-grade (IG) and 50% speculative-grade: $320 million in loans, $80 million in bonds, and $600 million in a duration-neutral IG bond hedge fund called Genie.
The first deal, Landmark CDO Ltd., closed on July 12 and is fully ramped, said Marchand. Financial Security Assurance provided a wrap. The major industries in the pool include gaming/lodging, broadcasting, and cable, respectively. Landmark also has healthy exposure to the food industry and general industrials, with few telecom credits and zero wire-line exposure. Marchand says he likes cable, broadcasting and gaming because the requirement for licenses adds to scarcity value. The fund is very diversified, with the average credit accounting for less than 1% of total assets. The firm has primarily focused on new issues for Landmark.
"Recently the most attractive part of the market has been in the primary market, where deals are conservatively capitalized and have attractive yields," he added.
Compared to his prior position at Merrill Lynch where he managed $11 billion in high yield loans and bonds, Marchand likes his new environment. "I think it's better being a small shop...You don't need large orders to fill a portfolio, and allocations of a few million allow us to be more nimble in getting out of positions if need be," he says.
Marchand likes companies that are conservatively capitalized with bank debt less than half of the capital structure and secured leverage less than three times operating cash flow.
Gilles Marchand is a CFA, and has an MBA from Cornell Business School, a BA from Ursinus College in Pennsylvania, and he spent 1996-2000 at Merrill Lynch Asset Management, and 1990-1995 at Mass Mutual.