Risk retention rules have driven another CLO manager into the arms of a larger financial institution.
In this case, the CLO manager, Triumph Capital Advisors, a small firm with just $1.5 billion across four collateralized loan obligations, is being sold by a bank holding company to a private equity firm.
Pine Brook, a private equity firm that specializes in financial services and energy sectors, has agreed to acquire Triumph Capital from Dallas-based Triumph Bancorp.
Financial terms were not disclosed in a press release issued late Thursday. However, as part of the transaction, Pine Brook is providing a $250 million line of equity to Trinitas Capital Management, a vehicle established to help CLOs comply with rules that took effect in December requiring managers to keep 5% of the economic risk in their deals.
The “skin in the game” requirement is a tall order for firms that collect management fees and have little balance sheet of their own. Smaller CLO managers have created majority-owned investment vehicles to bring in outside investors who can help finance risk retention stakes, agreed to be purchased by firms with bigger balance sheets, or in the case of Triumph, both.
“The implementation of risk retention has increased capital requirements for CLO managers, creating a need for strong management teams to attract significant amounts of equity capital,” Bharath Srikrishnan, managing director of Pine Brook, said in the press release.
“Pine Brook was formed for exactly this reason: to provide management teams with the capital they need to build their businesses. We view Gibran Mahmud and his team as best-in-class managers, and are excited to partner with them.”
Triumph Capital obtained management contracts for two CLOs as part of Triumph Bancorp’s March 2015 purchase of certain Doral Financial assets from the Federal Deposit Insurance Corp. Doral, which was based in Puerto Rico, had failed a month earlier
In the same press release, Mahmud, Triumph Capital’s chief investment officer, called the deal “a major milestone” that will allow the firm to growth the CLO platform and expand its product offering.
Triumph Capital has not issued a CLO since June 2015, when it completed the $409 million Trinitas CLO III, according to information posted on the firm’s website
In March 2015, it acquired the management contracts for two CLOs as part of Triumph Bancorp.’s acquisition of Doral Bancorp.
Prior to that, Triumph Capital issued the $416 million Trinitas CLO II in August 2014 and the $400 million Trinitas CLO I in May 2014.
In Thursday’s press release, Triumph Bancorp Chief Executive Aaron Graft said that the bank’s shareholder value will be maximized by selling the CLO manager to an institution whose activities are not impacted by regulations intended for depository institutions.