Global credit funds & CLO's
May 2020
| Issue 223
Published in London & New York.
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Opinion CLOs
Vinnie Ingato
A lot of CLO portfolios look similar and I’ve never been one to follow the herd
Head of leveraged finance
Zais Group
May 2020 | Issue 223
Newark, New Jersey
Princeton Junction, New Jersey
MBA in finance at William & Mary, in Williamsburg, Virginia
Last holiday:
Savannah, Georgia
Favourite movie:
The Godfather I and II (they were equally great)
Fun fact:
Ingato has seven children — six boys (including twins) and a girl
is a credit manager founded in 1997. It invests in structured credit, manages CLOs and has an impact investing business.
Ingato started his career at Chase Manhattan, but got his first taste of leveraged finance at Wells Fargo in the mid-1980s. He moved on to Fuji Bank, where he launched a US CLO/leveraged finance business, a feat replicated at ACA Capital before he joined CVC in 2008. After five years he joined Zais to build a CLO management business.
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Was this a balance sheet CLO?
No, it was an arbitrage deal — Fuji did not have a primary loan business. But it used to buy a lot of short-dated loans in the form of revolvers and term loan As. The idea was that Mountain Capital would buy the longer-term loans from the same corporates where Fuji bought the revolvers. We could provide compelling financing to borrowers across the debt stack.
How did you get your first taste of CLO management?
I joined Fuji Bank in the early 1990s to start a leveraged finance business. In March 1999 we became one of the first commercial banks to launch a CLO asset management business when we priced Mountain Capital CLO I. At the time Fuji was among the world’s top-five largest banks in terms of assets.
You’ve made a name for yourself with your ability to source high spread loans. Will you replicate that this year?
We are value investors. Yes, we tend to have among the highest weighted average spreads across our CLOs, but that’s because we view those loans as undervalued. Today, you can buy loans at 80 cents. The spread doesn’t matter as much on a loan trading at such a large discount. So we will naturally adapt our approach, but it’s still value investing.
What is the best investment in credit?
If you’d asked me two weeks ago I would have said CLO triple As. But these have rallied a lot, so now the best investment is lower-rated loans, including certain triple C names. A lot of CLO portfolios look similar and I’ve never been one to follow the herd. Many CLO managers will sell out of triple Cs or defaulted assets, regardless of price. There are a lot of loans trading in the single digits and a lot of these businesses are going to be around for the long term. You might buy a loan and end up with equity where the pay-off has the potential to create a very attractive return.
What is the worst investment in credit?
High double B loans are extremely crowded. Right now you could end up paying 98.5 for a loan that pays just 175 basis points. There’s very little upside there.
What is the best trade you’ve ever done?
When I was at CVC, I bought a second lien loan in a small oil and gas company. The second liens were paying down, but I managed to source some of it in the secondary market at 85 cents. It became clear that the seller was a CLO manager liquidating a deal, so when the same loan appeared on another b-wic several weeks later, I bid 65 with the same result. A month later the second liens repaid at par.

A more recent trade was an out-of-favour retailer’s loans in the secondary market. Zais built up $50 million of exposure to the credit, which soon rallied to par. It highlights how some loan investors will immediately dismiss a credit based on industry, even when fundamental analysis suggests it’s a decent risk.
What is the worst trade you’ve ever done?
This would have to be a second lien loan to a real estate development company based in Hawaii back in 2008. It recovered close to zero.
What would you change about the way your industry does business?
The bid-ask spread on loans is too wide. In recent weeks I have seen one loan with an 800bp differential between bid and ask prices. The problem is that loans are not as liquid as they could be. If we were to trade over an automated system, we could reduce that bid-ask to 5bp. We would still need dealers to transact, but the market would be much more efficient.
Who is your inspiration?
My wife. She is the nicest, kindest person I know and we are celebrating our 35th wedding anniversary this year, which will hopefully culminate in a holiday to Italy once travel restrictions are lifted.
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