Littlejohn draws AAA rating on debut CLO

  • Firm’s Wellfleet unit launched earlier this year
  • CLO to invest mostly in Class A-1 notes
  • Fitch sees “strong recovery expectations”

Littlejohn & Co closed a $360 million collateralized loan obligation to invest in leveraged loans — the first in its 19-year history — as private equity firms continue to move into the commercial lending business.

Littlejohn & Co tapped its Wellfleet Credit Partners unit, formed earlier this year, to manage Wellfleet CLO 2015-1. Proceeds from the issue of secured and subordinated notes will be used to buy a portfolio of $350 million of primarily senior secured leveraged loans, according to Fitch Ratings. About 94 percent of the portfolio consists of first-lien loans with “strong recovery expectations,” Fitch analyst Aaron Hughes said.

Littlejohn declined an interview request.

Angus C. Littlejohn, Jr., chairman and co-founder, Littlejohn & Co
Angus C. Littlejohn, Jr., chairman and co-founder, Littlejohn & Co

Brian Ramsay, president of Littlejohn, said in a prepared statement the CLO faced a “a volatile market environment” but received a strong reception.

Richard Maybaum, a Littlejohn partner, said in the statement that the firm “is already seeing the benefits of extending its reach into performing credit” as it offers a “performing credit investment product” to its LPs.

Fitch rated the CLO’s $215 million in Class A-1 notes an AAAsf, with a stable outlook. The AAA ratings present the lowest expectation of default risk, according to Fitch definitions. (The “sf” in the rating stands for structured finance). The CLO features a four-year reinvestment period and a two-year non-call period. Most of the other investments in the CLO also drew AAA ratings, although the CLO includes about $29 million in unrated, subordinated debt.

Littlejohn’s debt management unit formed Wellfleet as a dedicated credit group to invest in broadly syndicated loans and related fixed income investments. The Greenwich, Connecticut-based firm tapped Scott McKay and Dennis Talley to lead Wellfleet. Both previously worked at Redan Park Asset Management andDoral Leveraged Asset Management.

CLO issuance has been on the rise in recent years as investors seek yield in a flat interest rate environment. Private equity firms have been expanding into leveraged loans overall as traditional banks pull back in the post Dodd-Frank era. Z Capital floating a $401 million vehicle over the summer.

Typically Littlejohn invests in middle-market companies, with revenue ranging from $100 million to $800 million, “all facing the opportunities and challenges of significant change,” according to its website.

Action item: See Fitch’s note on the Wellfleet CLO: