Instead, the firm, voted Broadly Syndicated CLO Manager of the Year, started to aggressively add risk. It became one of only a small number of asset managers with open warehouses even in the depths of the pandemic.
Part of the reason for the firm’s resilience was its view on the economic outlook. “Our view going into 2020 was that we were entering a late cycle environment,” says Lee Kruter, head of corporate bonds and loans. “We were focused on larger, more liquid transactions higher up in the rating spectrum.”
The result was that throughout the volatility the firm was adding to its CLO portfolios and long term warehouse facilities. Over the course of the summer, GoldenTree purchased over $700m of loan assets for its CLOs across the US and Europe.
This contrast between GoldenTree’s purchases and the forced selling elsewhere in the market has shown up time and time again. Where many CLO managers have a dedicated analyst team associated with a single CLO strategy, GoldenTree has one team that operates across all its different strategies.
“This means we’re better able to react to a downturn and focus on buying,” says Kruter. “We really relish periods of volatility.”
Over the last five or so years, when bouts of turbulence have forced other CLO managers to sell, GoldenTree has put cash to work.
The asset manager has the advantage of decades of experience. GoldenTree has been a global credit manager for 21 years and issued CDOs and CLOs since its inception.
Founder Steve Tananbaum made them part of the core strategy, and hired Joe Naggar in 2007 to build out the firm’s infrastructure for CLO and structured products investing. The average experience of a GoldenTree team member is almost 15 years.
“There’s a lot of structured product DNA in the firm,” says Joe Naggar, head of structured products and chair of the firm’s risk committee. “That means we are constantly innovating around the CLO structure to create the best vehicle we can to deliver an attractive return profile at either the debt or equity level.”
The firm has a long track record as a regular but careful issuer, taking a much more opportunistic approach than many other managers. GoldenTree is by no means the largest issuer, but it prices its debt at some of the tightest levels.
“We could clearly come to market more, but we want to be very deliberate in how we approach the market,” says Naggar. “The aim is to create offerings that across market cycles will be in the top quartile of their peer group.”
Ultimately, GoldenTree is trying to drive performance on its CLOs first and foremost by differentiated asset performance – the return-on-assets of the loan portfolio. Naggar says that historically loans in GoldenTree CLO’s have delivered returns that equate to 100bps over the index per annum. “That kind of outperformance,” he says, “is not common.”
Steve Tananbaum, the firm’s founding partner and chief investor officer, adds: “We remain committed to continuing to deliver differentiated performance in our CLOs.”
A perfect example of GoldenTree’s judicious choice of window and deal structure was the $503m US CLO 7 that it priced in late April. The transaction was one of the market’s largest and tightest deals at the time.
Kathy Sutherland, head of business development and strategy, notes the deal also attracted many unique investors. “We had Taiwanese insurance firms and Japanese regional banks,” she said. “We’re always trying to expand our debt investor base. In this case, we had investors that were new to GoldenTree and in some cases even relatively new to US CLOs.”
The firm chose a one-year non-call and one-year reinvestment period structure to maximise flexibility. Then in April 2021, it returned to reset the transaction, reducing the triple-A pricing from 190bp to 107bp and increasing the reinvestment period by five years.
“This highlights the value that certain managers can bring to the CLO structure,” says Naggar. “It’s an example of being proactive in when to price, what structure to use and how to reset or refinance. Having a manager creating value on the asset side and the liability side is hugely beneficial for investors.” GC
