GSO Capital Partners recently closed on a permanent capital vehicle, Abingdon Finance Ltd., a $100 million managed closed-end, Guernsey-based fund. The end goal is the fund will be publicly traded and GSO will have a fund with permanent equity capital that can grow via a secondary offering. GSO can continue to raise money under this fund and will not need to create a second entity. This type of structure could be attractive for firms because they can tap the public markets for money to put into a collateralized loan obligation rather than having to fundraise, which can take much longer. It would also allow individual investors to invest in a CDO.
Half of the proceeds from the initial $100 million will be for investment in the equity of CLOs that GSO sponsors and manages. The other half will be invested directly in a loan portfolio that is going to be leveraged. The firm is borrowing money from a financing source to leverage that part of the portfolio between three or four times. There is no maximum on how large the fund can grow. Dan Smith, managing director, declined comment.
The fund will have overall leverage between six to seven times and the projected dividend of the deal is 13% plus. Merrill Lynch and Goldman Sachs are the placement agents for the transaction.
The structure has not been done by a lot of people because it is considered difficult to set up. However, one portfolio manager said that if anyone is going to do "it's GSO. Those are a smart bunch of guys."
A few other firms have tapped the public markets with slightly different structures. In Europe, AXA Investment is the investment manager for Volta Finance, which began trading on Euronext Amsterdam in mid-December. It will invest directly in five asset classes including collateralized debt obligations managed by AXA, asset-backed securities and leveraged loans. An AXA spokesman declined comment. In the U.S., Highland Capital Management set up a fund, Highland Financial Trust, that is focused on the equity of real estate CDOs. It has filed an S1 with the Securities and Exchange Commission. It is expected the fund will do an initial public offering this year (see related story, page 2). A Highland official declined comment.
GSO is in the market with Gale Force 3, a $500 million CLO. It closed Gale Force 2 in June 2006 and Gale Force 1 in December 2005 (CIN, 1/6/06). In the summer of 2005, GSO, led by Bennett Goodman, bought the CDO business of RBC Capital Markets, which Smith headed (LMW, 7/25/05).
