Collateralized Loan Obligation trustee sweats details so clients focus on growth

Chicago-based Tony Fajardo helps ensure that investors get the information – and cash – that they’re supposed to

Any business leader would probably rather spend less time dealing with service issues and more time developing and selling products, and that’s why clients like working with client manager Tony Fajardo and his deal administration and analytics colleagues who support him and make up the U.S. Bank Collateralized Loan Obligations (CLO) team.

CLOs pool together collections of loans, typically syndicated bank loans, which are commercial loans provided to a borrower by a group of lenders rather than a single lender. Collateral managers then purchase the loans on the secondary market and repackage them into tranches to be sold to investors. A tranche is a portion of the CLO that layers risk and return to determine an investor’s corresponding payout, meaning tranches carry different levels of risk and investment upside.

As a CLO client manager, Fajardo’s clients are generally collateral managers or investment management firms that market their CLOs to investors.

“The CLO products require that there’s a trustee or third party to act on behalf of the investors, and that’s our role,” Fajardo said. “As the trustee, we are making sure everything is performing per the governing documents and that investors are getting paid in a timely manner.”

The daily administration and particulars can vary depending on the client, he said. U.S. Bank has been recognized as the leading CLO trustee by multiple industry organizations and, as the premier trustee in the market, the U.S. Bank CLO group assists new market entrants in understanding governing documents and rules to abide by.

“Clients know we hold a very large market share,” said Fajardo, who’s based in Chicago and has been with U.S. Bank since 2007. “They know we have a lot of market exposure and knowledge that we’re able to leverage. So, they’ll use that to see what we’re seeing in the market. We help them in that regard, while never compromising our advocacy for the investors.”

While Fajardo manages details of the CLO deals that he oversees every step of the way, his work is heightened when there is a distribution to investors, which usually happens quarterly, he said.

“We review cash flows and reports, and ensure payments are correct,” he said. “We pay administrative expenses and pay investors. We work closely with them throughout that process.”

“If we can help them with all of the day-to-day stuff and let them focus on growing the business, that’s how we shine for them,” he said. “What they don’t want is investors complaining because they’re not getting payments, things are processing incorrectly, they’re late on getting their cash, there are shortfalls in payments to investors or reporting is late. We work to ensure those things don’t happen.”