- Wraps up first CLO fundraise in less than a year
- Z Capital unit retains majority of deal’s subordinated notes
- CEO mainly negative on credit, but sees potential
The CLO comes as Z Capital has grown its platform from buyouts into credit partly with an eye on expected opportunities related to disruption in loans to oil and gas companies and other credit.
“We think things are going to get a little rocky in credit,” Zenni said. “By expanding our platform, we’ll be ready for opportunities.”
The bulk of the firm’s recently-closed Z Capital Credit Partners CLO 2015-1 Ltd is invested in AAA-rated credit, with Z Capital CLO Management, a unit of Z Capital Group, retaining a majority of the deal’s subordinated notes.
Collateralized loan obligations are a type of security backed by a pool of debt, typically corporate loans. The Z Capital CLO is backed primarily by a revolving pool of broadly syndicated senior secured loans.
Z Capital will manage the selection, acquisition and disposition of the assets, including discretionary trading, during its 4.5-year reinvestment period. The CLO will comply with recent European securitization risk retention regulations.
While it’s the first CLO that Z Capital has launched, the firm’s principals have had exposure to credit for many years. Black Diamond Capital Management, which Zenni co-founded, did four CLOs while he worked there. And some of his team from Black Diamond moved with him to Z Capital.
“Insitutions that invested in this CLO have known me for many years,” Zenni said. ”We have taken the approach where we have ramped this very slowly. Our rejection rate of broadly syndicated loan debt is pretty high. We can afford to be pretty disciplined on credit.”
On the staffing front, the firm recently hired Andrew Curtis as managing director to head up the CLO team at Z Capital. Curtis previously worked at Mercer Parker LP, Sandelman Partners and Lazard Freres Restructuring Group.
The firm also plans to add at least one more senior position for loan origination.
Z Capital Partners is the private equity management arm of Z Capital Group, an alternative investment manager with approximately $2.3 billion of regulatory assets under management and offices in New York, Lake Forest, Illinois, and Zurich.
Citi Research Credit Analyst Maggie Wang said U.S. CLOs from 2005-2007 turned in an average IRR of 19 percent, well ahead of the 12 percent IRR for U.S. private equity over the same period, according to a March 20 research note. U.S. CLO market issuance hit $23.4 billion as of March 20, ahead of the year-ago period at that time, according to the note. Citi Credit is forecasting about $95 billion to $110 billion in U.S. CLO issuance this year.