Bundled debt back in vogue with first listed CLO fund since crisis

Michael Bow
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THE FIRST UK listing of a collateralised loan obligation (CLO) fund since the financial crisis was announced yesterday, underscoring the ongoing revival of the once-maligned sector.

Fair Oaks Income Fund, which is led by former executives at Apollo Global Management and GSO Capital Partners, said it hopes to raise $200m (£119m) by listing on London stock exchange’s specialist fund market next month.

The listing is the first CLO to float in London since the financial crisis and mirrors a similar revival in the US, where retail investor appetite for higher yielding funds has driven a spike in listed CLOs.

Fair Oaks will use the cash to buy exposure to US and European CLOs, made up mainly of floating-rate senior secured loans. GLI Finance, which provides loans to small businesses, yesterday said it had sold two CLO investments to Fair Oaks worth $55m yesterday – its maiden investment.

CLOs, which bundle up risky but high returning corporate loans, were popular before the financial crisis but fell out of favour as credit markets around the world dried up, but this year has seen a resurgence in issuance.

April was the second biggest month on record for US CLO issues with $13.5bn issued, close behind the $14.1bn raised in the best month on record November 2006, according to figures from JP Morgan.

Fair Oaks said the fund would target a return of between 12 and 14 per cent – well above the 3.5 per cent yield of a FTSE 100 tracker.