Former Deutsche traders launch Asia Pacific CLO
SC Lowy, the boutique investment bank set up by former Deutsche Bank distressed-debt traders, has launched a $400 million collateralised loan obligation comprised of debt from Asian issuers, hoping to capitalise on the region’s nascent market for CLOs.
The Hong Kong-based firm said on March 1 it has teamed up with UOB Asset Management, the equities and fixed income investment arm of Singapore’s United Overseas Bank, to launch what it claims is the first fully Asia Pacific-backed, actively managed cash flow CLO.
The CLO will mainly contain senior secured bank loans from Asia Pacific issuers. It is being marketed in the US in the first week of March, followed by Europe and Asia from the week starting March 7, according to a statement.
CLOs play a key role in the syndication of debt by buying portions of leveraged loans from banks. As banks that originate par loans in Asia have typically held them until maturity and only turned to the secondary market to exit distressed holdings, the market has been small outside of China, where the CLO market has grown rapidly since the country reopened its securitisation market in 2012.
Elsewhere in Asia-Pacific, there have been few enquiries on CLO issuance since 2010, according to Standard & Poor’s. The agency hasn’t rated any CLO issuance in the region for the past few years.
But a more active approach to risk management by banks is increasing secondary trading in par loans in Asia, which is expected to increase opportunities available to CLOs targeting the region.
SC Lowy estimates annual secondary loan volume in Asia at between $3 billion and $5 billion excluding syndications, compared with roughly $500 billion in the US. The firm set up a trading business for par loans – debt valued at 90% or more of its face value `– in 2015 in anticipation of more activity.
SC Lowy chief executive Michel Löwysaid in a statement: “CLOs provide a critical funding mechanism for corporate borrowers in the US and Europe. With this transaction we hope Asia will follow suit and fill a vacuum for banks in need of liquidity for Asian par assets.”
The CLO’s collateral will be managed by UOB Asset Management and SC Lowy. It will be underwritten by Standard Chartered, Resource Capital Markets and UOB Securities.
Löwy and Soo Cheon Lee set up SC Lowy in 2009 after having previously led Deutsche Bank’s special situations team in Asia. The firm, which also has offices in London and Seoul, has traditionally specialised in trading subpar loans and high yield bonds but also has a debt capital markets business. It also co-invests alongside its hedge fund clients in distressed debt.