Antares Capital to restart CLO business under CPPIB

Antares Capital plans to float about US$1 billion in collateralized loan obligations (CLO) a year starting in the fourth quarter, as it gears up as a unit of the Canada Pension Plan Investment Board (CPPIB).

Antares, which was acquired by CPPIB from its prior owner GE Capital over the summer, plans to offer roughly two CLOs a year of about US$500 million each. This is in line with deals it handled in the years prior to Antares’s acquisition by GE Capital in 2005, said Managing Partners David Brackett and John Martin in an interview. Antares got out of the CLO business at that time because GE didn’t choose to pursue it, according to a person familiar with the business.

Martin said Antares plans to back the equity tranche in its CLOs and raise capital for more highly rated tranches in the debt market. Generally, the equity tranche is the toughest part of the CLO structure to raise, Martin said.

CLOs offer securities backed by a pool of underlying loans. CLOs are sliced up into different tranches of debt with different ratings, typically from AAA down to B debt ratings. The equity portion of the CLO may often hold a B rating.

“We’ll be investing in all of the equity ourselves,” Martin said. “That should make the raise (for CLOs) a little bit easier.”

Overall, CLOs have been gaining traction in the marketplace as a way for investors such as commercial banks and insurance companies to buy yield in a flat interest rate environment. Non-bank lenders have been moving into the space as traditional banks pull out in the face of Dodd-Frank rules.

Meanwhile, Antares also is looking to hire a treasurer, general counsel and human resources staff as it bulks up its back office as a standalone business with 300 employees. CPPIB’s US$12 billion acquisition of Antares from GE Capital closed in late summer, according to an August 24 press release.

While it plans to stick to its core business of senior debt, Antares may also underwrite junior capital, with up to 10 percent of its loans falling into that bucket, Brackett and Martin said. At GE, Antares just offered senior debt.

Under GE, Antares teamed up with Ares Management on a senior secured loan program (SSLP) to back unitranche debt offerings. Ares has since teamed up with Varagon Capital, which is backed by American International Group. Antares plans to offer this type of financing under CPPIB, Brackett and Martin said.

Antares recently closed a US$14 billion financing package to back the sale of the unit, along with its origination, underwriting and distribution platform, according to reports.

Credit Suisse, Deutsche Bank and Citigroup led an offering of credit facilities for the deal including a US$1.2 billion term loan and a US$2 billion revolver as well as a US$10.7 billion asset-based facility, according to sources cited by Reuters.

Overall, Antares continues to position itself as a lender focused on the middle market under its new owner CPPIB, which purchased Antares as a way to generate long-term gains for its nearly US$270 billion in AUM.

Buyouts Insider Executive Editor David Toll contributed to this report.

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