Babson rejuvenates Duchess I fund

Duchess I is the largest European leveraged loan CLO investing primarily in senior secured and mezzanine loans. The Fund initially closed in June 2001 at EUR 750m. It was upsized to EUR 1bn in an innovative EUR 250m tap issue in February 2002, the first ever upsizing of its kind for a European CLO.

Through this amendment the maturity of Duchess I has been extended by four years until 2017. The primary driver for the maturity extension was to allow Babson Capital Europe to continue to invest in the primary leveraged loan market where high levels of prepayment have become normal practice. These changes are vital to ensure the Fund stays fully invested in high quality assets during its reinvestment period. As part of the amendment process, various other features were incorporated into the Fund to reflect the advances made in CLO structuring during the past four years. In addition, the pricing of the AAA rated notes was reduced from 52 bps to 42 bps to bring the overall cost of funding closer to current market levels.

Duchess I’s successful amendment may pave the way for other CLO funds of this vintage to follow suit and represents the first time a CLO of this kind has been extended instead of being called or wound down. Investors were receptive to the restructuring due to the strong performance of the fund since its launch in 2001 and there were clear benefits for all note holders in efficiently extending Duchess I rather than issuing a new fund. Voting closed on 5th July. Of the votes cast, 98.45% of Class A investors, 100% Class B investors and 100% of Secured Income Note investors voted in favour.

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