Katzenstein and Pitke discuss the firm's liquid credit platform and plans for the future

Antares Capital’s liquid credit platform, which launched last year and today is a BSL CLO issuance platform, is a “natural extension” of its private credit CLO platform, allowing the company to offer a broader opportunity set of products to clients, according to the firm.  

Speaking about its business plan, Seth Katzenstein, head of liquid credit at Antares tells SCI: “We intend on being a frequent and programmatic CLO issuer. We issued two last year, we've already issued one this year and moving forward we hope to issue two to three CLOs per year. Down the road, we intend to introduce commingled funds and separate managed accounts focused on senior secured loans as well.”

Katzenstein highlights that one of the differentiating aspects of the liquid credit platform is that it can draw knowledge and insights on what’s happening in the economy.

“We do this from trends we are seeing with our 465 portfolio companies in our private credit portfolio. Often we can do that before it shows up in economic data and so we're able to use that knowledge base, with appropriate safeguards, to better manage our investments,” he says. 

However, there are also challenges that are systemic to setting up a new platform. “You need to have a track record,” says Katzenstein. “So, one advantage we have is credibility because Antares has been managing private credit assets for nearly three decades. That being said, it's not a liquid credit track record and so there are certain investors for whom we wouldn't necessarily qualify despite our long tenure. So, we leverage our existing relationships to help us with investors.”

It is also important to consider the current market environment, in particular the arbitrage for CLO equity, according to Katzenstein. “We think this is very attractive right now, particularly given the significant triple-A tightening this year,” he explains. “Also, with deals amortising, banks are getting back capital and losing paper, so we almost can't issue CLOs fast enough.”

He adds: “The limited supply of collateral has caused some issues there as well. But, overall, we think the arbitrage is attractive, but that will create times where issuance might be slower or collateral won't be available.”

Katzenstein outlines that we are in a market right now where new issue supply is very limited. May was a very active month for loan issuance, he says, while June was also active. “But we saw issuance start to slow down in June and net issuance was relatively low even though gross issuances were quite high. I do think that provides some technical challenges that many businesses will face.” 

Mak Pitke, senior vice president at Antares Capital notes that for its BSL investor base to grow the most important thing is its experience with middle market CLOs. Around the middle of last year, he says, the firm had around 77 unique investors that were involved in its middle market CLOs. However, Antares has been seeing a number of crossover investors who used to only invest in BSL CLOs start to expand into middle market CLOs.

“With each transaction we are expanding our base of middle market CLO investors,” says Pitke. “That's a trend I think we’ll continue to see as investors get more comfortable with the private credit product. For investors who are already invested on the middle market side of our platform, it's natural for them to also look at our liquid credit BSL business and that's been a nice synergy between the two platforms.”

Overall the CLO market is still fairly constructive, Pitke says. There was a brief period after the recent market volatility when spreads widened, but he sees that the top of the stack has mostly recovered. Lower mezz, in slight contrast, remains slightly wider with dispersion across manager tiers. 

“Year to date, however, the overall cost of debt for CLOs has come in materially,” says Pitke. “We believe amortisation of triple-A tranches from older deals, a scarcity of new issue loan collateral leading to less true new issue BSL CLO creation, and a tight credit spread environment have all contributed to a busy issuance year for CLOs, including refis and resets.”

Ramla Soni