Market updates and sector developments

Redding Ridge Asset Management has acquired CLO management contracts totalling US$2.8bn in AUM from Gulf Stream Asset Management. With the close of the transaction, Redding Ridge will have more than US$26bn of AUM and expects a seamless integration of the contracts and to actively manage the new portfolios consistent with its disciplined CLO strategy.

Redding Ridge is an independently managed affiliate of Apollo, specialising in CLO management and structured credit partnership investments. This is the second portfolio acquisition of CLO management contracts by affiliates of Apollo from Gulf Stream, stemming from a longstanding relationship and aligned investment philosophy. Apollo and Redding Ridge entered into a strategic partnership with Gulf Stream in March 2019 to relaunch its CLO business and, under the leadership of president and cio Mark Mahoney, Gulf Stream grew to US$2.8bn of CLO AUM.

In other news…

Altriarch secures anchor investor
Altriarch Asset Management has launched a new private credit investment strategy focusing on transactions that are internally sourced, underwritten and structured. With a strategic focus on senior secured facilities, mezzanine facilities and participating capital or asset-backed loans, the new strategy will seek to deploy capital to an expansive network of diversified secured finance operators across the US. The University of Wyoming Foundation is anchor investor in the fund.

As traditional banking systems become more risk-averse, the funding gap for small businesses continues to expand. Altriarch believes factors and other asset-backed lending companies, which represent a combined US$404bn annual market segment, are qualified to fill that gap as alternative lenders become increasingly popular for businesses seeking access to credit.

CRAs charged for recordkeeping failures
The US SEC has announced charges against DBRS and KBRA for longstanding failures to preserve electronic records. Additionally, the SEC charged DBRS with violating disclosure and internal control provisions of the federal securities laws in rating certain CMBS.

The SEC’s recordkeeping order finds that, since at least July 2019, DBRS employees communicated internally by text messages about initiating and determining credit ratings and about adjustments to results of the quantitative predictive model that the agency used to rate multi-borrower CMBS. The order finds that DBRS failed to retain these messages in violation of recordkeeping provisions of the federal securities laws. DBRS admitted the SEC’s findings and agreed to pay a US$6m penalty, cease and desist from committing violations of the relevant recordkeeping provisions, and a censure.

The SEC’s disclosure and internal controls order finds that, in rating certain multi-borrower CMBS between July 2019 and November 2022, DBRS made systematic adjustments to credit enhancement levels in a manner not described by DBRS’s published procedures and methodologies. Additionally, according to the order, in rating three single-asset/single-borrower CMBS, the agency publicly disclosed that it used a legacy SASB methodology, but it instead used a key element of a proposed methodology that DBRS had not yet approved and adopted.

The order finds that DBRS had an ineffective internal control structure governing adherence to its published procedures and methodologies. Without admitting or denying the SEC’s findings, the rating agency agreed to pay a US$2m penalty, cease and desist from committing violations of the relevant provisions, and to be censured.

Meanwhile, in connection with KBRA, the SEC’s order finds that since at least January 2020, KBRA employees sent and received numerous text messages concerning credit rating activities on their personal and KBRA-issued mobile devices. The agency did not preserve the substantial majority of these off-channel communications, in violation of recordkeeping provisions of the federal securities laws. KBRA admitted the SEC’s findings and agreed to pay a US$4m penalty, cease and desist from committing violations of the relevant recordkeeping provisions, and to be censured.

Both rating agencies have also agreed to retain an independent compliance consultant to conduct a comprehensive review of their policies and procedures relating to the retention of electronic communications and their frameworks for addressing non-compliance by employees with those policies and procedures.