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Analysis CLOs
BofA: innovation and consistency
by Tom Davidson
The first of our new series of CLO arranger profiles takes a look at Bank of America, the largest shop in the market, where one team covers CLO arranging, trading and financing, globally
The fortunes of CLO arrangers wax and wane, but the past few years have seen Bank of America consistently at the top of our CLO arranger league tables. So what’s the secret to their success? As with anything CLO-related, the answer isn’t simple.
One part of the equation is the way the team is organised. Under the leadership of David Trepanier, global head of global credit-structured products in FICC trading at BofA Securities, sits a team that combines CLO arranging, trading and financing, globally. The business is organised to look like its clients’ businesses, but on the sell side.
The CLO team reports to Brian Carosielli, co-head of global credit and head of FICC ETFs, and ultimately Jim DeMare, president of global markets for Bank of America. Brian Weinstein also co-heads the global credit team.
Trepanier says: “We sit under the global credit trading umbrella, and that allows us to help clients source the underlying product and assets, whether it’s through secondary channels or through our lev-fin business, which are both world-class. That’s helpful to us, but also part of the strategy. CLOs complete a chain of distribution and financing for leveraged-finance products. A world-class lev-fin business and trading business on the loan side demands a world-class CLO business, ultimately.”
The financing business is run by Will Lloyd, global head of credit asset financing, who also focuses on a collaborative approach. “We provide comprehensive, and I think very differentiated financing solutions, where we allow managers to pivot seamlessly through dealing with the same people and the same team between public tradeable credit and private credit,” he says. “It also allows clients to pivot from bank financing to capital markets execution with our primary team to obtain CLO financing.”
It’s natural to want more flexibility, but that’s not always the best strategy
David Trepanier
Global head of GCSS-structured products
BofA Securities
The team is also run globally at all levels to make it easier for clients to source assets, find financing, banking and structuring solutions, trading and distribution, through one channel and one team. On the structuring side that extends to the entire team helping out when things get busy on one side of the Atlantic or the other.
Attention to detail on structuring and distribution allows BofA’s clients to access the CLO market when it suits their strategy. BofA uses its seasoned team to deal with surges in deal activity. The team also boasts an equally seasoned dedicated CLO sales team under the leadership of Hunt Roeder. Roeder and Seth Ramsey have both been with the firm and the team for more than 20 years. BofA’s CLO franchise also benefits from world-class distribution in Europe under Laurent Benarroch, and in Asia.
The last part of the structural puzzle Is the only piece that sits separately — a highly regarded CLO research team, run by Chris Flanagan, head of US mortgage and structured finance research, alongside one of the top research analysts in the industry, Pratik Gupta, head of CLO and RMBS research. Alexander Batchvarov, another seasoned and acclaimed research analyst, is the head of international structured finance research, covering the European CLO market.
A decade or more of experience
Structure only goes so far though. Another notable feature of BofA’s CLO franchise is the length of time the team has been in the CLO market. With the exception of relative newcomer Gupta, the other members of the CLO business are all grizzled veterans.
“It’s consistency,” says Trepanier. “People know who they’re dealing with, the product they’re getting, and the team. We’ve all been together for 10-plus years or more, which is remarkable on Wall Street. And that’s on all sides: research, sales and trading.”
He also highlights a less tangible benefit, the way adversity can bring a team together. Trepanier’s senior leadership started in the great financial crisis, and more recently the team weathered COVID together. “We’ve been through a lot of challenges together over the years,” says Trepanier, “and that depth of experience and camaraderie has only brought our team closer and made the team more powerful.”
Hitting the sweet spot
One of the hallmarks of the BofA style is pivoting along the curve depending on where CLO demand is strongest. That’s another result of a global approach, but this time from the syndication desk, which is also integrated in the business.
With an integrated desk across the US and Europe, the team can be tactical about the advice it gives to managers. “It’s a natural desire for any asset manager to want more flexibility in a deal for longer, but that’s not always the best strategy,” says Trepanier. “We saw that in the last year when the arbitrage was challenged. Our desk came up with a lot of innovative solutions. Perhaps short duration or even static deals are better. Or maybe you should do a transaction with a higher credit quality, lower WARF this time, because that segment of the loan market is not being as well bid. We take the CLO lens and our trading desk looks at the assets coming in, and what is underappreciated, but also where the most demand is coming from on the financing side or the CLO liability placement side. We pair that up across the US and Europe.”
That approach extends to CLO trading. Alex Murdzhev, global head of CLO secondary trading, says: “It’s important for us to be able to see relative value and estimate client demand across everything that our clients look at in the CLO space.”
Changes large and small
The BofA team is proud of its reputation for innovation, from small structural tweaks to improve arbitrage, to major changes to the asset class. On the large side, the BofA European CLO primary desk worked with Permira Credit on the first detailed exclusion-based ESG criteria for European CLOs. The framework has been widely adopted across the industry.
When the arbitrage is challenging, the bank likes to develop structures on the liability side, or different tenors of structure. Or it may pivot a CLO vehicle to ramping collateral that’s higher quality and higher in convexity compared with on-the-run CLOs.
Another market innovation was CLO ETFs. Over the past few years, ETFs have grown into a major investor in CLO debt, with some USD 10bn of AUM. But the early days were challenging. BofA worked with some of the initial managers developing the product, helping them with data and supporting evidence of liquidity to show how they thought that ETFs could ultimately be traded. Murdzhev says: “This activity should increase liquidity and the ability to express risk views using ETFs for our customers.”
As well as helping CLO ETFs from capital and liquidity perspectives, the research team has become involved as well. Apart from his securitised products role, Flanagan also covers fixed income strategy broadly. Meanwhile, BofA Securities has started producing research articles focused on CLO ETFs.
Another innovation is electronic trading. BofA has been working on Octaura, an electronic trading platform for leveraged loans and CLOs, for several years. It was one of the co-founding banks alongside Citi that incubated that idea and helped form the consortium and ultimately the company. It was also one of the first banks to execute an electronic CLO trade on the Octaura platform.
Trepanier believes this will have profound impacts on the CLO industry over time, especially as the private credit and broadly syndicated markets continue to move closer together. “Having transparency and confidence in the information you’re getting on the product when you’re making a trading decision in real time is powerful and will promote greater liquidity in the market.”
Bank of America team
David Trepanier
Global head of GCSS-structured products
New York, 22 years
Trepanier is responsible for BofA’s CLO new issue and CLO/CDO secondary trading businesses, as well as credit asset financing. He joined the bank in 2002 as an associate in the CDO structuring group. In 2004, he helped form the CDO/CLO secondary trading desk for Bank of America Securities. He then ran the CDO/CLO trading desk until 2015.
Alex Murdzhev
Global head of CLO trading
New York, 18 years
Murdzhev works in the global credit division. He is based in New York and has held his position overseeing US and European CLO trading since 2017. He joined Merrill Lynch in 2006 and has held various roles in the CLO/CDO structuring and secondary trading businesses.
Edward Tang
Global co-head of CLO primary
New York, 11 years
Tang is based in New York. He was previously global head of CLO syndicate and US head of CLO structuring, and joined BofA in 2013 from Citigroup global markets, where he held various roles in CLO/CDO structuring and loan TRS financing.
Will Lloyd
Global head of credit asset financing
New York, 20 years
Lloyd has worked in the credit asset financing group since 2006, providing structured financing solutions to strategic global markets clients. Prior to this he worked in leveraged finance.
Charles Hand
Global co-head of CLO primary
London, 19 years
Hand is responsible for the origination and structuring of European CLOs, as well as sourcing loan financing opportunities. He has more than 20 years of experience in structured credit. He joined Bank of America in February 2005. Before that he spent three-and-a-half years at Fitch Ratings.
Chris Flanagan
Head of US mortgage and structured finance research
New York, 14 years
Flanagan is a fixed income strategist who started his career on Wall Street in 1986 at Merrill Lynch as a mortgage analyst. He moved to JP Morgan Chase from 2000-2010, before returning to BofA Merrill Lynch in 2010. He has perennially ranked on the Institutional Investor all-american fixed income research team.
Alexander Batchvarov
Head of international structured finance research
London, 26 years
Batchvarov is a managing director and head of international structured finance research, a role he has held since joining Merrill Lynch in 1998. Since joining the firm, Batchvarov has also served as head and co-head of global mortgages and other structured finance between 2007 and 2010. Prior to this, he worked at Citibank and Moody’s Investors Service, New York.
Pratik Gupta
Head of CLO and RMBS research
New York, 4 years
Gupta and his team cover trends in mortgage credit and its securitised market in the US. They also cover the CLO market. Gupta has been ranked number one in the Institutional Investor survey for RMBS & CLOs for the past three years. He was the co-head of RMBS/CLO research at Nomura until 2019.
