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CMA
August 16, 2019  

Corporate CLO Issuer Preparing to Cross Over

Sound Point Capital, an active issuer of corporate CLOs, is expected to float its first commercial real estate CLO by yearend.

The New York shop has been ramping up its bridge-loan originations in recent months, while also building out its lending staff.

Market pros said the firm has lined up $650 million of originations and commitments, putting it within sight of securitization.

Sound Point reached a key fund-raising milestone in July when a nontraded REIT that it subadvises raised $274 million of equity. Sound Point will deploy that capital for the REIT, InPoint Commercial Real Estate Income, which is advised by Inland Investments of Oak Brook, Ill.

One market pro described the vehicle as an essential piece of the puzzle, because it gives Sound Point capital needed to retain the equity piece of a securitization. CLO sponsors typically keep 15-35% of their deals to align their interests with those of their investors and satisfy risk-retention rules.

“They have been a little capital-constrained in terms of CLO issuance, but this should get them there,” the market pro said. “Pedigree-wise they are very capable.”

Sound Point was founded as a corporate-loan investor in 2008 by former investment banker Stephen Ketchum, with backing from principals of private equity shop Stone Point Capital of Greenwich, Conn. It has grown into a powerhouse corporate CLO issuer, printing nine U.S. deals totaling $6.1 billion since 2017, which ranked it 11th in volume over the period for what is the busiest asset class in structured products.

In 2016, Sound Point hired veteran lenders Don MacKinnon and Andrew Winer to kick-start a commercial real estate lending operation. Both had previously worked at Realty Finance, a nontraded REIT in New York that floated a $428.4 million commercial real estate CLO in 2015. Before Realty Finance, MacKinnon worked at Cole Real Estate Investments of Phoenix, Nomura and Donaldson, Lufkin & Jenrette. Winer’s resume also included a stop at DLJ, and he stayed on when Credit Suisse acquired that investment bank in 2000. At Sound Point, they are portfolio managers, reporting to Ketchum.

Later in 2016, MacKinnon and Winer brought on another Realty Finance alumnus, Matthew Donnelly, to oversee originations. He previously had long stints at Cole and Bear Stearns.

Five other Realty Finance veterans arrived the following year: chief credit officer Bruce Viergever; Jason Fruchtman, head of capital markets; commercial real estate counsel Marc Tolchin; and directors Aaron Taryle and Michael Clifford, who focus on originations.

Sound Point has further bolstered its staff over the past two months. Last week it hired Stephen Shockey, an experienced originator based in Chicago who previously worked at CLO issuer A10 Capital. On the underwriting side, CBRE alumnus Kyle Baldwin started as an associate last month.

Sound Point plans to hire more originators and an analyst in the coming months.

The company will join the relatively short list of corporate CLO issuers that have crossed over to the growing CRE CLO market. So far, they include Ares Management, Benefit Street Partners, Blackstone, DoubleLine Capital, Fortress Investment, KKR, Marathon Asset Management and TPG.

“I think you will see more CLO managers move to add CRE CLOs,” said one corporate issuer. “What do you do as a manager if you are already running at capacity? You need to expand somewhere.”

That said, market pros assert that such an expansion requires hiring a team of commercial real estate specialists.

“There is some issuer overlap, but not a lot,” said one source. “They share the same terminology and structure, but they are very different in terms of the risks and the assets.”