Elimination of risk retention requirements for open-market collateralized loan obligations has made it easier for smaller managers to set up shop. But there is still some consolidation in the industry.
On Monday, JMP Group said it had sold a majority interest in its CLO management business, JMP Credit Advisors (JPMCA), a move designed to reduce the San Francisco-based boutique investment bank's debt and smooth out its earnings. Medalist Partners, a specialist in structured credit investments and asset-backed lending based in New York, is acquiring a 50.1% stake. JMPCA, which is located near Atlanta, will be renamed Medalist Partners Corporate Finance, and will continue to manage its three outstanding CLOs.
In the statement, JMP Group Chairman and CEO Joe Jolson said that the deal allows the bank to “deconsolidate” the $1.2 billion of outstanding CLO securities from its financial statements, shrinking its debt level to just over $84 million. The sale will also smooth out the company's quarterly operating earnings “due to the absence of irregular credits costs” in CLOs, he said.
JMPCA, which is led by portfolio manager Bryan Hamm, was created nine years ago, when JMP Group acquired Cratos Capital Partners. Cratos at the time managed a $467 million CLO issued in 2007; the deal was renamed JMP Credit Advisors CLO I. JMPCA has since issued four more deals, two of which were redeemed early in 2017.
The sale to Medalist comes as the cost of issuing new CLOs has risen substantially over the past year, with average spreads on AAA-rated CLO securities some 40 basis points wider for some managers. JMPCA's most recent new deal (JMP V) was issued in July 2018; prior to that it had issued a new CLO (JMP IV) in Jun 2017 and December 2015 transaction (JMP III). The latter was refinanced in February 2018.
The sale to Medalist Partners reduces JMPCA's reliance on JMP Group for capital and leaves the investment bank with "a significant investment in a highly scalable asset management platform with the prospect of rapid [assets under management] growth,” Jolson said in the release. As part of the sale agreement (whose financial terms were undisclosed), Medalist Partners committed additional capital to a warehouse credit facility that the JMPCA established last year through BNP Paribas to acquire broadly syndicated corporate loan collateral for deals.
JMP Group will retain a 45% share in the business; the remaining 4.9% is held by the CLO firm's management.
