LevFin Lens – US CLO: Q&A with Audax Private Debt’s Dinko Angelov

In an LFI exclusive, Dinko Angelov, MD and senior member of Audax Private Debt explains how “limited” demand for middle market CLO AAAs and third-party equity is a major challenge for the growth of middle market CLO asset class, which is down about 19% YTD, according to LFI data.

Based in New York, Audax Private Debt is a private credit manager with $25bn in AUM and a 25-year history of providing flexible financing solutions to US middle market companies. The firm has invested $46bn across more than 1,300 transactions, partnering with close to 300 private equity sponsors. Audax has completed 15 CLO transactions and manages over $5bn across 10 active MM CLOs. Its most recent issuance, Audax Senior Debt CLO 12, is a $455mn middle market CLO backed by a fully ramped portfolio of senior secured loans and features seven tranches rated AAA to BB- by S&P.

Japanese banks have boosted interesting MM CLOs in recent years, but US buyers remain cautious, limiting capital at the top of the stack, which is critical for CLO creation.

Third-party demand for middle market CLO equity continues to climb, drawing hedge funds, family offices, and nontraditional investors. The market is ripe for captive equity funds focused on MM CLO equity. The market remains too small for mezzanine or equity-focused ETFs. Managers like Audax prefer to keep CLO equity and select debt tranches, giving them flexibility to swap out weak credits and optimize recoveries.

LFI: Can you tell us about the growth in the middle market CLOs over the last few years?

Angelov: Back in 2018, we launched our CLO platform. There were about 15 CLO managers on the middle market side, and now there are about 40 that have issued MM CLOs. That’s some…