CLO Warehouse structures providing ramping and marketing benefits to middle-market direct lending funds - Oliver Fochler in Capital Structure
An increasing number of middle market direct lending fund managers are employing securitisation technology to facilitate the ramp-up and marketing process for their funds. By employing a structure similar to a CLO warehouse, the direct lending funds can be more easily marketed across Europe, while also posing regulatory capital benefits to investors. According to Oliver Fochler, managing partner and CEO of Stone Mountain Capital, a number of managers have set up - or are in the process of setting up - CLO-type structures in order to ramp up mid-market direct lending portfolios. These structures are typically domiciled in Ireland, Malta or Luxembourg. "If the direct lending fund is structured as a securitisation, investors have the option of buying a note as debt rather than shares as equity," said Mr. Fochler. "Under Solvency II there's a benefit of investing in a securitisation over a fund because of the solvency capital ratio. A securitisation structure also typically comes with fewer marketing restrictions than an AIF." Mr. Fochler said he does not anticipate a resurgence of European middle-market CLOs like those seen pre-crisis, however. The direct lending CLO structures or securitisation companies currently in use are, unlike traditional middle market CLOs, not tranched. Structures are also typically unrated and placed in the private market. Stone Mountain Capital has recently structured an in-house European Direct Lending Fund for lower middle-market corporates in AIF format with an associated securitisation vehicle. Interview with Oliver Fochler was covered on 17th July 2017 in Capital Structure under 'CLO Warehouse Structures Providing Ramping And Marketing Benefits To Middle-Market Direct Lending Funds' (website requires registration).