Monroe Capital shifts to larger loans in new $412 mln CLO

Monroe Capital has rich experience in the broadly syndicated loan market through its BDCs and debt funds. But this is its first CLO that offers investors access to yields from securitized senior loans of debt rated between AAA and B in larger buyout deals. The broadly syndicated loan market typically focuses on securitizing loans of $250 million or more.

“Our investors requested us to take advantage of our expertise and bring it to the broadly syndicated market,” said Ted Koenig, CEO of Monroe Capital.

Monroe is retaining a 5 percent stake in the CLO (collaterlized loan obligation), or about $20 million of the $412 million pool. That puts it in compliance with European risk retention guidelines as well as proposed U.S. risk retention guidelines.

Koenig said the firm supports these new regulations in Europe. Similar rules are expected to come into effect in the United States.

“If we’re asking our investors to buy into our product, it’s right that we buy into it,” he said. “We’re stepping up in a big way and eating our own cooking.”

BNP Paribas served as the lead manager, structuring agent and bookrunner on the CLO. The pool has a four-year reinvestment period.

Monroe Capital’s predecessor CLO, Monroe Capital CLO 2014-1, which closed last September, was secured mostly by middle-market senior secured loans used in middle-market deals, not broadly syndicated loans. Deutsche Bank led the $358 million offering.

Monroe drew support from European investors and added some large U.S. LPs in its latest CLO, in the face of “very strong interest” from institutional investors, Koenig said.

Koenig declined to comment on a separate effort by the firm to raise $600 million for Monroe Capital Private Credit Fund II LP.

Monroe Capital differentiates itself from hedge funds and others in the CLO space by focusing on fundamental credit analysis and taking a long-term view, without trying to time the market. It also deploys its own method of due diligence in its debt investments, Koenig said.

In one recent deal, Monroe Capital funded a subordinated debt facility to support support the acquisition of Lineage Capital’s stake in Mud Pie LLC, a manufacturer and seller of gifts such as monogrammed purses, apparel, and baby clothes. The dollar amount of the deal, which returned Mud Pie to 100 percent family ownership, was not disclosed.

Looking ahead, Koenig is scheduled to appear on Sept 30 at the PDI Debt Investor Forum at the Westin Times Square in New York City.

Monroe Capital provides senior and junior debt, along with equity co-investments, to middle-market companies in the U.S. and Canada. It handles unitranche financings, mezzanine debt, second lien or last-out loans and equity co-investments.

Overall, big banks have been pulling back from leveraged lending due to regulations being enforced in the wake of the 2008 financial crisis, opening up opportunities for non-bank loan shops. Investors remain hungry for yield in the current low interest rate environment.