CLO Round-up: With SEC clarity re risk-retention (finally), an active week

global CLO volume

After a sluggish start to the month, it was an active week in the U.S., both in terms of new issues and on the regulatory front. Four U.S. new-issue transactions priced, while in Europe, AXA Investment Managers priced the third deal of the month, a €362.3 million transaction, via J.P. Morgan. Through Friday, July 24, global issuance rises to $73.67 billion.

The SEC provided much-awaited guidance that CLOs issued prior to Dec. 24, 2014 – the date the final risk-retention rule was published – will be able to refinance debt tranches under certain conditions after the rule takes effect in December 2016 without being subject to risk retention. The SEC’s position is reflected in a July 17 no-action letter in response to a request from Crescent Capital Group. It provides the market with clarity around the refinancing issue, which has been a topic of discussion since the final risk-retention rule was first published in October 2014. – Kerry Kantin/Isabell Witt

Year-to-date statistics, through July 24, are as follows:

  • Global issuance totals $73.67 billion
  • U.S. issuance totals $63.94 billion from 120 deals, versus $71.11 billion from 133 deals during the same period last year
  • European issuance totals €8.75 billion from 22 deals, versus €6.92 billion from 16 deals during the same period last year


This analysis is taken from a longer LCD News story, available to subscribers here, that also details

  • Recently priced CLOs
  • CLO pipeline
  • US CLO volume/outstandings
  • European CLO volume/outstandings
  • European priced CLOs



Tikehau hires Goold for European CLO business

Alison Goold has joined Tikehau as a portfolio manager in its European CLO business. In this new position, Goold will report to Debra Anderson, head of the CLO department.

Goold joins from BNP Paribas, where she had been a director in the leveraged syndications team. Previously she had been head of corporate credit and a portfolio manager at AgFe, an independent advisory and asset management firm, and before that was a managing partner at mezzanine fund manager Carta Capital.

Tikehau recently priced its debut €354.7 million CLO through Goldman Sachs. – Nina Flitman


CLOs: A Volcker Rule primer ahead of tomorrow’s compliance date

Non-Volcker compliant AAA CLO paper has widened in the secondary market over the past couple of months ahead of a key deadline arriving tomorrow that prohibits U.S. broker-dealers from making markets in non-compliant paper.

Morgan Stanley CLO research analysts, Richard Hill and Mia Qian, in their June CLO Market Tracker research report, estimate that the basis to Volcker compliant CLOs is now more than 50 bps, which in their view, is due to diminished liquidity in this paper.

For those of you not yet fed up with hearing about Volcker and its impact on the CLO market, here is a run through the key points:

The Volcker Rule effectively prohibits U.S. banks from holding ownership interests in “covered funds,” and a CLO that includes bonds in its collateral pool, and which is issued under Rule 3c-7, is classed as a covered fund. Under Volcker, ownership includes “the right to participate in the selection or removal of an investment manager” of the covered fund, outside of an event of default.

To be clear, tomorrow’s deadline only restricts U.S. broker-dealers from making markets in non-compliant CLO paper. Via an extension granted by the Federal Reserve last December, banks are still able to hold non-compliant CLO paper on their books through July 21, 2016 (with an additional extension through July 21, 2017 expected). However, this extension applies only to non-compliant paper held by banks as of Dec. 31, 2013, and thus, as of tomorrow, banks are no longer expected to trade or make markets in non-compliant paper, which has constrained liquidity in recent months.

There is a market-making exception that allows bank trading desks to trade non-compliant CLOs, but the exception contains two large impediments which could limit its use, according to Wells Fargo. “First, the bank faces a firm-wide limit for Volcker exceptions of 3% of Tier 1 capital; the bank then must decide how much of that exception to allocate to the trading desk. Second, any non-Volcker compliant tranches incur dollar-for-dollar capital charges against the banks’ Tier 1 capital,” the firm noted.

In terms of market impact, Wells Fargo analyst David Preston summarized in his February 2015 CLO Desktop Regulatory Guide research report that the majority of all CLO 1.0 deals should be paid off by 2017, that most post-2014 CLOs are Volcker compliant (i.e. do not include bond buckets), and so it’s the 2012 and 2013 vintage CLOs that are the issue, of which there was roughly $130 billion outstanding as of February this year.

Since the final version of the Volcker Rule was released in December 2013, CLO managers and their investors have been busy amending existing transactions to remove bonds. Some have done this via painstaking amendment processes with their investors, while others have used the CLO refinancing route to remove bonds, with 14 of the 22 refinancing transactions pricing so far in 2015 removing bonds via the process, according to LCD.

Although most players do not expect any further regulatory relief – there is the wild card of the “Barr bill” is still outstanding. Congressman Andy Barr has sponsored two Volcker-related bills – H.R. 37, or the ‘Volcker bill,’ which passed to the Senate earlier this year, and which includes a provision that would allow banks until July 21, 2019, to divest non-compliant CLO holdings – and H.R.1841. This latter bill was introduced in March and, while reintroducing the Volcker extension, also seeks to amend Section 13 of the Bank Holding Company Act of 1956, known as the Volcker Rule, to allow CLOs to have ownership interests in a hedge fund or private equity fund.

Still, one man’s loss is another’s gain and for investors that are not particularly concerned about liquidity, Morgan Stanley’s Hill and Qian think non-Volcker compliant legacy CLO AAA paper presents an attractive investment opportunity, given the much wider spread levels and relatively short weighted average life. – Sarah Husband

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Apollo prices jumbo $1.11B CLO via JPM/Citi

Co-placement agents J.P. Morgan and Citi have priced a $1.11 billion CLO for Apollo Credit Management, according to market sources.

The transaction is structured as follows:

The non-call period ends on the July 2017 payment date, the reinvestment period on the July 2019 payment date, and the legal final maturity is the July 2027 payment date.

The transaction is the first jumbo CLO of more than $1 billion to price this year. For reference, five CLO managers priced jumbo CLOs sized at $1 billion or more in 2014. These included OCP CLO 2014-6, Atrium XI, Madison Park Funding, Ares XXXI, and ALM XIV.

This is the manager’s third new-issue CLO to price in the U.S. in 2015, Apollo also priced a $475 million refinancing of ALM VI this year.

Including Apollo’s transaction, U.S. CLO issuance rises to $61.99 billion in the year to date from 116 CLOs, according to LCD. Four deals have priced in July for $2.64 billion. – Sarah Husband


CLO roundup: Greek cloud hangs over Europe; US prints eight deals

Having already paused activity last week, Greece’s debt problems now threaten to curtail new-issue CLO activity for the rest of the summer in Europe after yesterday’s rejection of austerity measures. It also remains to be seen whether the U.S. market will lose its momentum after last week’s bonanza that saw eight deals print stateside.

Global CLO volume Jul 3 2015


Year-to-date statistics are as follows:

• Global issuance totals $68.38 billion.
• U.S. issuance totals $59.96 billion from 113 deals, versus $64.01 billion from 119 deals during the same period last year.
• European issuance totals €7.56 billion from 19 deals, versus €6.92 billion from 16 deals during the same period last year.  – Sarah Husband



Palmer Square, NYSE launch two new indices to benchmark CLOs

Palmer Square Capital Management has teamed up with the New York Stock Exchange (as calculation agent and distributor) to launch two new indices designed to benchmark the CLO markets.

The Palmer Square CLO Debt Index (NYSE: CLODI) and Palmer Square CLO Senior Debt Index (NYSE: CLOSE) are billed as the first broadly distributed daily benchmarks for U.S. dollar-denominated CLOs backed by broadly syndicated leveraged loans.

The Palmer Square CLO Debt Index is a rules-based observable pricing and total return index for CLO debt sold the United States, rated A, BBB or BB (or equivalent rating), i.e. mezzanine CLO debt.

By contrast, the Palmer Square CLO Senior Debt Index will track the ‘senior’, or AAA and AA (or equivalent rating) tranches.

Palmer Square’s investment team developed the proprietary methodology for calculating the indices. The NYSE serves as the calculation agent for the indices and will disseminate index values daily.

Palmer Square Capital Management, an independent asset manager and part of the Montage Investments family, provides investment advisory services and manages portfolios of corporate and structured credit, high yield municipal credit and various hedge fund strategies for a diverse set of clients across institutional investors, registered investment advisory firms, broker-dealers and high net worth individuals.

As of April 30, 2015, Palmer Square managed in excess of $3.7 billion in assets. The firm recently closed on its fourth CLO, a $435.8 million transaction via J.P. Morgan. – Sarah Husband


CLO issuance in May hits 11-month high in Europe, dwindles in US

CLO issuance, US vs Europe

It was a tale of two markets for CLO volume in May. The European market took a large step forward with €2.4 billion from six transactions, while in the U.S., an underwhelming $5.66 billion of issuance added further evidence that CLO formation will be compromised while loans remain in short supply.

Putting this into perspective, May volume was the highest in Europe since June 2014, according to LCD. And with at least four transactions in the marketing phase right now, June will likely be another solid month.

Meanwhile, in the U.S. May’s supply is the lowest level since January, when $5.15 billion of deals priced, and is roughly a third of March’s record $16.24 billion. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.

You can read more on how the CLO market works here.

This story is taken from a longer piece of analysis, available to LCD News subscribers here. 


Loan bids essentially unchanged following long holiday weekend

The average bid of LCD’s flow-name composite was essentially unchanged in today’s reading, easing one basis point to 99.93% of par, from 99.94% on May 21. Activity was muted over the past two sessions and the market was closed yesterday in observance of Memorial Day.

Among the 15 names in the sample, three loans advanced, three declined, and nine were unchanged from the prior reading. Posting the largest move, at a quarter of a point, was the Charter Communications F term loan due 2021 (L+225, 0.75% floor), which dipped to a 99.25 bid on news that the cable operator has agreed to buy rival Time Warner Cable in a deal that values the target at $78.7 billion. While details on the structure of the debt financing have yet to surface, the cable operator disclosed in SEC filings today that it expects to incur roughly $23 billion of new debt in connection with the TWC purchase, as well as an additional $2 billion associated with the concurrent $10.4 billion proposed acquisition of Bright House Networks.

Market participants are optimistic that the mega-merger will yield a jumbo financing for the institutional loan market, which would help to balance out today’s technical imbalance that has fueled a fresh wave of opportunistic repricing and refinancing activity. In the month to date, repricing activity has accelerated to $31.9 billion, surpassing April’s recent high mark of $19.2 billion.

With the average loan bid slipping one basis point, the average spread to maturity was stable, at L+386

By ratings, here’s how bids and the discounted spreads stand:

  • 100.01/L+358 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+359.
  • 99.81/L+428 for the six loans rated B or lower by one of the agencies; STM in this category is L+427.

Loans vs. bonds 
The average bid of LCD’s flow-name high-yield bonds rose 31 bps, to 102.01% of par, yielding 6.21%, from 101.70 on May 21. The gap between the bond yield and discounted loan yield to maturity stands at 209 bps. – Staff reports

To-date numbers

  • May: The average flow-name loan is down 37 bps from the final April reading of 100.30.
  • Year to date: The average flow-name loan is up 301 bps from the final 2014 reading of 96.92.

Loan data

  • Bids lower: The average bid of the 15 flow names fell one basis point to, 99.93% of par.
  • Bid/ask spread wider: The average bid/ask spread widened one basis point, to 31 bps.
  • Spreads constant: The average spread to maturity – based on axe levels and stated amortization schedules – was unchanged, at L+386.

Guggenheim prices $856.75M CLO via Citi; MTD issuance hits $13.6B

Citigroup today priced an $856.75 million CLO for Guggenheim Partners Investment Management, which was upsized for a second time, according to sources.

The transaction is structured as follows:

Recall the transaction was initially outlined as $654.55 million, though it had previously been increased to $805.4 million.

The deal has a two-year non-call period, a four-year reinvestment period and a 12-year legal final maturity.

The asset manager yesterday also priced its $558.9 million Kitty Hawk CLO 2015-1 deal via Mitsubishi UFJ Securities, though note this is Guggenheim’s third print in the U.S. this year.

CLO issuance in the year to date now stands at $28.11 billion from 52 deals, according to LCD. March issuance is $13.58 billion from 25 deals. Though there are still a couple more days left in the month, issuance thus far in March is the highest since June 2014, when $13.78 billion of deals priced. – Kerry Kantin

For more on how the CLO markets work check out LCD’s Loan Primer.