Morgan Stanley in Talks to Buy Assurant’s CLO Assets

(Bloomberg) -- Morgan Stanley is in talks to buy Assurant Inc.’s collateralized loan obligation assets, taking another step in beefing up its leveraged credit business, according to people with knowledge of the matter.

An agreement could be reached in the coming week, said the people, who requested anonymity because the talks are private. A deal hasn’t been finalized and it’s possible one may not be reached, they said.

A spokesperson for Morgan Stanley declined to comment and representatives of Assurant didn’t immediately respond to requests for comment.

Assurant’s CLO notes exposure, at fair value, was $1.6 billion as of March 31, according to filings. Morgan Stanley would be paying a fraction of that total for the rights to manage the CLO assets.

Last year, the lender signaled an ambition to throw its weight behind CLO sales, joining peers like Goldman Sachs Group Inc. in assembling deals that package leveraged loans into bonds with varying risk and return.

Morgan Stanley Investment Management in April 2019 hired longtime Assurant executive Michael Feeney as head of leveraged loans. Morgan Stanley committed $150 million in equity to MSIM’s CLO platform. The firm’s first deal, last November, raised $457 million.

The market for CLOs was roiled as fear about Covid-19’s impact on corporate America took hold. Prices on the underlying debt plunged to their lowest level in more than a decade in March as the virus wiped out earnings.

Read More: CLO warehouses liquidated by Axa, Steele Creek in rare step

Prior to the pandemic, the market for CLO issuance boomed, spurred on by investors deprived of yield by years of low interest rates. That led to some consolidation among managers of the deals, as larger investors tried to get in on the action. LibreMax Capital, Paul Singer’s Elliott Management Corp. and Thomas H. Lee of Lee Equity Partners have bought or built up CLO platforms in recent years.

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