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Thursday, 25th April 2024 |
| AIB launches E350m Tara Hill CLO |
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Allied Irish banks has launched Tara Hill BV, a o350 million Collateralised Loan Obligation (CLO). This fund will invest in a range of senior secured loans, mezzanine loans and high yield bonds in the buoyant European buy-out market.
Tara Hill is sponsored and advised by AIB Capital Markets and the transaction was arranged by Morgan Stanley Dean Witter.
Collateralised Loan Obligations are set to become a popular alternative investment strategy for pension funds and insurance companies in Europe. The Tara Hill fund is one of the first of this kind in Europe.
Tara Hill has been funded through the issuance of o323 million of Moodys rated AAA, AA, BAA and BA along with a o41 million unrated equity tranche. Investors in Tara Hill comprise of a broad range of European insurance companies, pension funds, banks and other financial institutions. 25 per cent of the unrated equity tranche has been retained by AIB.
Tara Hill is be an arbitrage CLO. This means that it will raise money from its investors who will be buying the various levels of rated paper and equity, and in turn will invest in the European buy-out market.
According to Robert Gallagher, head of AIBCM's Special Finance Unit, the vehicle is an attractive way for pension and insurance companies to gain access to the underlying collateral: namely the European buyout market.
He explained that investors choose which level of risk they wish to expose themselves to - for example the senior notes have little risk associated with them while the subordinated notes have more risk. The rate of return on the investment is linked to the amount of risk the investor takes on.
However it is the subordinated notes that offer the real opportunity for this type of vehicle. It is these that are most likely to offer the high returns, and because pension and insurance companies are unlikely to be able to participate directly in the European buyout market, the structure offers a way to be involved in a less risky way.
Reaction from the market has been very positive according to Gallagher, with all of the investors allocated before the product was launched at the end of January. In fact there are plans to launch a further CLO later in the year and AIB wnat to be a major player in this sector of the market.
Arbitrage CLOs are formed specifically to invest in loan and bond assets, with all over the investment layers oversubscribed before the project was launched. According to AIB over o50 billion was issued in the CLO arbitrage market in the US during 2000 and said there was substantial potential for growth in Europe. |
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| Article appeared in the February 2001 issue.
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