Shenkman raises $400m for a first-loss book on its own CBOs

Shenkman has raised $400 million for a fund dedicated to the equity of its own new-issue collateralised bond obligations, according to an exclusive Creditflux report citing a source familiar with the raise. The money is a bet on the front of the structured credit calendar, and it does its job only if the firm has new deals to feed it.

That cuts against the summer's dominant storyline, which has been the reset wave — managers repricing seasoned CLOs rather than committing fresh capital to new collateral. Shenkman's fund points the opposite way; it earns its keep only if the new-issue calendar delivers.

Equity absorbs the first loss in exchange for the residual. Raising a dedicated book of outside money for it is a statement that the residual on Shenkman's own CBO pipeline is an attractive standalone asset class, a bet on spread and a bet on supply.

The money arrives while the market is testing what the CLO structure can take as new collateral: Eagle Point is readying the first infrastructure CLO, as PCD reported, and Sona priced Europe's first hybrid BSL-private credit CLO in August. Those are experiments in what can be securitized; Shenkman's fund is an experiment in who funds the riskiest slice.

The fund's size is modest next to the nearly $2 billion of resets four managers priced in a single August week, but it is aimed at a different part of the capital structure. Resets reprice seasoned liabilities; an equity fund for new-issue CBOs is a forward commitment to the first-loss layer.

The wave has been read in some corners as evidence that new issuance is stalled. Shenkman's raise suggests the opposite, because printing requires equity capital lined up in advance; the fund is a concrete wager that the new-issue calendar is about to pick up.

The report names no investors and no return targets; the one disclosed term is that the fund is dedicated to Shenkman's own new-issue CBOs, a pre-sold bid for the equity layer of its own paper.

A manager that can raise equity before it has priced the debt has solved the hardest problem in the structured credit cycle: finding the layer that takes the first loss. The fund is, in effect, a booked first-loss buyer ahead of the deals.

The first CBO the fund prices into is the test: if the equity layer clears inside the manager's underwriting, the model repeats; if it does not, that first deal's pricing will say more than the $400 million ever could.