The Royal Bank of Scotland has reportedly sold a €1.4 billion ($1.8 billion) portfolio of leveraged loans to Intermediate Capital Group.
RBS, which is 83% taxpayer owned, agreed to sell the portfolio, which consists of European leveraged loans, to reduce its balance sheet and exposure to its leveraged loan book.
London-based Intermediate, which has approximately €11 billion under management, said it will fund the acquisition with equity and debt. The price the firm paid for the portfolio wasn’t made available.
Intermediate is packaging the debt into its first CLO since 2008 called ICG EOS Loan Fund I, a European arbitrage CLO.
According to Fitch Ratings, the deal is funded by securitization of mostly European senior secured loans. The offering will be managed by Intermediate Capital Managers Ltd. (ICML). The deal comprises four tranches, including a €790.7 million triple-A tranche rated by Fitch.
These initial assets should be sold to the issuer at an average portfolio price that is sub par. However, for the purposes of the over collatereralization tests, the initial assets will be marked at par, Fitch said.
The rating agency said that the initial portfolio's sale is subject to a limited failed settlement risk as the portfolio will be bought at closing, but not settled.
If an initial asset fails to settle within 90 days after closing, According to Fitch, the investment manager can buy an alternative asset offered by RBS or use the cash to buy other assets from other sellers.
In December 2010, the portfolio par amount should be at least equal to the target par amount of €1.412 billion. If this is not the case, the class A and B notes may be redeemed from interest proceeds, Fitch said. ICML has to present a plan on how to proceed and purchase more assets.
Unlike similar CLOs, reinvestment of unscheduled principal proceeds is not permitted after the reinvestment period in this offering. Thus, it will delever faster versus comparable CLOs, the rating agency said.
ICG EOS Loan Fund I has a two-year reinvestment period expiring in August 2012. During the reinvestment period, the investment manager is allowed to sell assets and reinvest sale and other principal proceeds into substitute assets.