What does the Agent do in a CLO?

What does the facility agent do in an APAC CLO?

While the US CLO market edges towards the US$1 trillion mark, APAC CLOs continue to be a niche market that provide finance to corporates and a HY return to sophisticated lenders.

APAC CLO

Unpack an APAC CLO and its simply a combination of two mechanisms. A ‘fund piece’ and a ‘finance piece’. Together they create a leverage platform for deal sponsors.

‘Fund’ vrs ‘Leverage’ piece

The fund piece permits the pooling of private equity into an SPV that typically invests into a new lender SPV. The leverage piece permits non-bank and bank lenders facilitate higher returns.

CLO Governance

Apart from HY returns, CLOs also generate governance challenges as fund / finance parties face divergent risk/return payoffs and grapple with various frictions including:

1. Enforceability of agreed funder / financier bargain;
2. Keeping track of multiple loans at fund level; and
3. Monitoring of LTV and interest coverage covenants at asset level.

CLO facility agent

The CLO facility agent solves governance frictions at both the ‘leverage piece’ and at the loan portfolio levels.

CLO frictions

Fund and asset level loans each have various transactional frictions including:

1. Complex interest calculations;
2. Onerous conditions precedent/subsequent;
3. Various utilization processes;
4. Ongoing monitoring (LTV / cover ratios etc); and
5. Affirmative covenants etc.

Tech Innovation

As fund managers start delivering bank like solutions there are huge innovation opportunities. Our systems keep track of all of the key CLO frictions and enable managers to focus on their core activities.