The Carlyle Group LP (Nasdaq: CG) has closed two collateralized loan obligation (CLO) funds, one in the U.S. at about $613 million and the second one in Europe, valued at around $547 million (€464 million). Proving their ability to deliver favorable returns and minimal defaults even through the recession, CLO funds have resurfaced as lucrative investment vehicles for the private debt world.
A CLO fund is a security backed by a pool of debt, often times low-rated corporate loans, where payments from middle-market business loans are collected and repaid to limited partners. The CLO structure had proven to be beneficial for fund managers until the financial crisis, when it got something of a bad reputation, due to guilt by association with mortgage-backed securities. Since 2012, CLOs have been making a comeback, in part due to their ability to provide a handful of varying risk-to-reward profiles. CLOs, as opposed to unitranche investment vehicles, also allow firms to access a broader network of potential limited partners, some of whom would not be able to invest directly in middle-market loans.
Carlyle has now raised three U.S. CLO funds in 2017 including closing the Carlyle US CLO 2017-2 Ltd in June. No stranger to the debt structure, Carlyle also raised four CLO funds in 2016.
The resurgence of CLOs across the middle market is leading other firms to raise funds. Antares Capital raised its first CLO fund in May with nearly $2.1 billion in commitments; Madison Capital Funding LLC, the directing lending arm of New York Life Insurance Co., closed a $325 fund; and Trinitas Capital Management LLC closed the firm’s sixth CLO.