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LightPoint Capital nears inaugural deal

Chicago-based LightPoint Capital Management is impressing investors with a handful of debt-friendly structural protections in its first arbitrage cashflow CLO. The deal, which is being underwritten by ABN Amro (lead) and Links Securities (co-placement and structuring agent), is now marketing equity and junior mezzanine bonds.

Noteworthy features in the waterfall include an interest reinvestment test, which protects bondholders from both par deterioration and downward credit migration. Also, the deal features a mezzanine note amortization that uses 50% of excess available interest to pay down the double-B note principal, reducing credit exposure on the most expensive debt tranche. The deal also has a lower upfront arranger and structuring fee that increases the dollar level of the assets purchased, avoiding the large lump sum dealer takeout from the get-go, a common investor complaint. Instead, the structuring fees are taken in the form of pari passu equity that is received toward the end of the deal's weighted average maturity. Therefore, the structuring fees are subordinate to the debt. The base case on the equity is a 22% IRR with a 2% annual default rate and an 80% recovery rate on the loans.

LightPoint was formed by Thomas Kramer, Timothy Van Kirk and Guia Trutter, all former senior managers in ABN's North American leveraged finance group. The company was originally going to be affiliated with ABN Amro, but, in order to avoid consolidation issues, LightPoint was set up as an independent company with the principals owning 100% of the firm. ABN, however, retains a 10-year option to buy 24.9% of the equity in the firm.

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