Invesco prices $618M CLO via Morgan Stanley; YTD volume: $12.45B

Morgan Stanley has priced a $618 million CLO for Invesco Senior Secured Management, according to market sources.

The transaction is structured as follows:

The non-call period is 1.5 years, and the reinvestment period is 4.1 years.

Including this transaction, CLO issuance in the year to date rises to $12.45 billion from 23 transactions, according to LCD. Fourteen CLOs have priced in February for $7.3 billion. – Sarah Husband

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Och-Ziff prices $510.5M CLO via BAML; YTD volume: $10.1B

Bank of America Merrill Lynch on Friday priced a $510.5 million CLO for Och-Ziff Loan Management, according to market sources.

The transaction is structured as follows:

The non-call period expires on Dec. 15, 2016, the reinvestment period ends on Jan. 30, 2019, and the legal final date is Jan. 30, 2027.

Including Och-Ziff’s transaction, CLO issuance rises to $10.11 billion from 19 deals in the year to date, according to LCD. This is the 10th CLO to price in February for $4.96 billion. – Sarah Husband


LSTA issues CLO Refi Fact Sheet as market debates delayed-draw notes

There has been much focus on CLO refinancings recently, in particular where they concern U.S. risk retention regulation. On Friday the LSTA published a CLO Refinancing and Risk Retention Fact Sheet, which is designed to help market participants navigate the topic.

While CLOs issued before the Dec. 24, 2016 effective date for U.S. risk-retention regulation are grandfathered, many are concerned that any opting to refinance after that date will lose that grandfathered status – although there is much confusion around this point.

In its CLO Refinancing Fact Sheet, the LSTA says that while it is not clear how refinancings will be treated under the new risk-retention rules, it does not believe they should be considered a new securitisation transaction or regarded as a ‘work around’ for retention requirements under Dodd-Frank.

Meanwhile, in its January OnPoint, Dechert outlines the technical reasons why a CLO refinancing might cause the transaction to be caught by the regulation. While Dechert doesn’t believe the relevant agencies intended to subject CLO refinancings to the ‘Final Rule’, the technicalities around what constitutes a securitization transaction mean that a refi where new securities are issued could get caught up in the regulation. So absent any further clarification from the agencies, Dechert believes the market will operate as if a refi will fall within the scope of the Final Rule.

And that is what the market appears to be doing – with time and effort spent looking for ways to solve the potential refi issue. Sources suggest that while the CLO issuer and its investors may not ultimately look to utilise these ‘solutions’, they may be included in a transaction’s documentation to provide the parties involved with options.

The majority have opted to structure transactions with shorter non-call periods to allow for a refinancing to take place ahead of the effective date.

However, the number of managers using this option – this year CVC Credit Partners (Apidos XX), CVP CLO Manager (CVC Cascade CLO-3), and Prudential (Dryden 37) have structured CLOs with a shorter non-call periods, joining the 16 or so from last year – reduces the likelihood of this being a viable option for CLO managers, which would also need CLO liability spreads to tighten significantly to make the refinancing feasible.

The past few weeks have seen an increasing number of transactions price with non-call periods that fall after the effective date – Guggenheim (NZCG Funding), PineBridge (Galaxy XIX), 3i Debt Management US (Jamestown CLO VI), GSO/Blackstone Debt Management (Dorchester Park), and Apollo (ALM XII) – suggesting other options are being used.

Some managers have explored removing the refinancing option altogether in exchange for reducing the AAA coupon, and therefore improving the day-one economics for the equity.

Others still are considering the use of ‘delayed draw notes,’ whereby the notes issued in a refi are included in the original documentation. The solution is understood to have already been used in a U.S. CLO, according to Bloomberg, which reports that Apollo is among those managers that have used the strategy in its ALM XII CLO transaction, while sources say other managers are looking at its potential.

However, as is becoming the norm with more creative solutions to the issue, whether the approach will be deemed to comply with the regulation is being heavily scrutinised and debated.

While it’s not clear how the regulators are going to come down on the regular refinancings – due to the murkiness surrounding the fact no new loans are being securitized, but there are new notes being issued – the delayed-draw option may be considered a cleaner strategy.

“By taking this step and issuing securities before the risk retention effective date, managers are attempting to ensure that no new issuance of securities occurs after the effective date and thus no new securitization takes place after the rules take effect. This simply aligns the legal structure of the transaction with its intent, i.e., merely a re-pricing of selected notes of the original CLO transaction,” says the LSTA. – Sarah Husband

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Alcentra names Hatfield as global CIO, Yang as head of the Americas

Alcentra today announced several executive leadership appointments, with Paul Hatfield returning to the Group’s global headquarters in London in an expanded role as global chief investment officer. He will lead the firm’s initiatives related to multi-strategy credit portfolio management and customized investment solutions.

Jack Yang succeeds Paul Hatfield, as Alcentra’s head of the Americas, while retaining his responsibilities as global head of business development. In his new role, Yang is responsible for the firm’s business operations in the Americas, and product development, marketing, fundraising and investor relations globally.

Both report to David Forbes-Nixon, Alcentra’s chairman and CEO. – Sarah Husband


S&P: CLO exposure to recent Oil & Gas rating actions is limited

Standard & Poor’s Ratings Services has reviewed exposure in U.S. CLO transactions to the 23 oil and gas exploration and production companies whose ratings were affected by its Jan. 16, 2015 rating actions.

As per that report, the following borrowers were downgraded:

  • WPX Energy, to BB/Stable from BB+/Negative
  • Energy XXI, to B/Negative from B+/Negative
  • Warren Resources, to B-/Stable from B/Stable
  • Swift Energy, to B-/Stable from B/Stable
  • Midstates Petroleum Co., to B-/Negative from B/Stable
  • Magnum Hunter Resources Corp., to CCC+/Negative from B-/Negative
  • Black Elk Energy Offshore Operations, to CCC-/Negative from CCC+/Negative
  • Rooster Energy, to CCC-/Negative from CCC+/Developing.


The following borrowers had their outlook revised:

  • Chesapeake Energy Corp., to stable from positive (affirmed ‘BB+’ corporate credit rating)
  • Whiting Petroleum Corp., to negative from stable (affirmed ‘BB+’ corporate credit rating)
  • SM Energy Co., to stable from positive (affirmed ‘BB’ corporate credit rating)
  • Denbury Resources, to negative from stable (affirmed ‘BB’ corporate credit rating)
  • Legacy Reserves, to negative from stable (affirmed ‘B+’ corporate credit rating)
  • Chaparral Energy, to stable from positive (affirmed ‘B’ corporate credit rating)
  • Halcon Resources Corp., to negative from stable (affirmed ‘B’ corporate credit rating)
  • SandRidge Energy, to negative from stable (affirmed ‘B’ corporate credit rating)
  • Sabine Oil & Gas, to negative from stable (affirmed ‘B’ corporate credit rating)
  • Clayton Williams Energy, to negative from stable (affirmed ‘B’ corporate credit rating)
  • EXCO Resources, to negative from stable (affirmed ‘B’ corporate credit rating)
  • American Eagle Energy Corp., to negative from stable (affirmed ‘CCC+’ corporate credit rating).


The following borrowers had their rating placed on CreditWatch negative:

  • Apache Corp. – ‘A-’ rating on CreditWatch with negative implications
  • Breitburn Energy Partners – ratings placed on CreditWatch with negative implications.


The following borrower had its rating affirmed:

  • Continental Resources – ‘BBB-’ corporate credit rating affirmed. The outlook is stable.


Based on the agency’s review, a total of 17 U.S. CLOs have exposure to companies whose ratings were either lowered or placed on CreditWatch negative as part of the Jan. 16 rating actions. The largest exposure was 0.62%. All other exposures were less than 0.5%. Based on the small exposure, S&P doesn’t expect any rating actions for U.S. CLO transactions as a result of the Jan. 16 rating actions.

Based on its review in December 2014 of roughly 700 U.S. CLOs, the average CLO exposure to loans issued out of the oil and gas sector was only about 3.3%.

S&P will continue to review whether, in its view, the ratings currently assigned to CLO transactions exposed to the oil and gas sector remain consistent with the credit enhancement available to support them. – Staff reports


US House passes Volcker extension legislation

The U.S. House of Representatives today passed legislation that would grant a two-year extension, to July 21, 2019, of the application of the Volcker Rule to banks’ AAA and AA CLO holdings. The bill passed by a vote of 271-154.

As reported, the legislation, H.R. 37, last week failed as it was brought to the House floor under suspension of the rules, a parliamentary measure that requires two-thirds approval.

The bill now moves to the Senate. The White House, however, has indicated President Obama would veto the bill.

“The LSTA is encouraged that the House of Representatives passed a narrow Volcker fix, which will prevent banks from engaging in a forced sale of well-performing CLO AAA and AA notes,” said Meredith Coffey, executive vice president of research and analytics at the LSTA. “We hope the Senate and the Administration support this sensible modest improvement.”

LSTA Executive Director Bram Smith yesterday wrote a letter to the House Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas) and Ranking Member Rep. Maxine Waters (D-Calif.) expressing the organization’s support for the legislation, and specifically the language that would extend to 2019 implementation of the Volcker Rule with respect to banks’ CLO holdings.

“If left unaddressed, banks will be forced to sell these safe investments to opportunistic buyers who will demand a deep discount. If Volcker implementation is extended just two years, this problem will resolve itself,” Smith wrote, noting that by 2019, the vast majority of the CLO notes that are not Volcker compliant will have matured or been redeemed.

For the text of the legislation, click here. – Kerry Kantin


Leveraged loan mart softens in December as demand deficit deepens

loan supply v demand

Loan market technical conditions weakened in December as capital formation faded more quickly than supply. In all, the amount of S&P/LSTA Index loans outstanding exceeded visible demand from CLO formation and retail flows by $5.8 billion: $7.9 billion to $2.1 billion. It was the deepest demand deficit in three months, edging November’s $5.5 billion figure. – Steve Miller

This analysis is part of a longer LCD News story, available to subscribers here, also details

  • US prime fund flows
  • US CLO issuance
  • Volume of leveraged loans breaking for trading
  • Loan outstandings
  • Secondary loan prices
  • Leveraged loan returns
  • Loan yields


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US CLO Issuance Hits Record $124.1B in 2014

US CLO issuance

The U.S. CLO market printed $124.1 billion of new issues from 234 deals in 2014, according to LCD. That’s up from $83 billion in 2013 and blows through the previous high of $97 billion in 2006.

CLO issuance in December totaled $7.75 billion from 16 deals. It was the third lightest month of the year, ahead of just January ($2.55 billion) and September ($7.73 billion) At $13.78 billion, June topped the issuance charts last year, according to LCD.

Looking to this year, the general sense is that CLO issuance will continue albeit at a reduced rate. Regulatory uncertainty (risk retention, Volcker) and rising rates are likely to be key focal points for market players, who will also be watching for risk retention consolidation/strategic partnership plays. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.


2014 Leveraged Loan Investor Market: CLOs dominate as retail bid, banks fade

loan investor market

Over the final three months of 2014, the investor base for leveraged loans shifted further away from loan mutual funds, which were wracked by significant outflows. The continued strength of the new-issue CLO market only partially filled the void, forcing arrangers and issuers to sweeten challenging deals to attract relative-value investors in search of wide-margin paper. – Steve Miller

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LMA Survey: European CLO issuance likely €10-15B in 2015

The LMA today released the results of its survey on the outlook for the syndicated loan market over the next 12 months. A summary of the key points follows, and the survey can be found here.

Competitive pressure in the market, and global geopolitical and/or economic risks, are the top-two respectively when it comes to factors people think will most influence the syndicated loan market over the next 12 months, according to the survey, while corporate M&A, followed by refinancings, are likely to present the best opportunities over the same timeframe.

As for syndicate loan volume expectations, just under half those surveyed believe there will be an up to 10% increase in volume, and 42% think it will be unchanged. Meanwhile, 47% forecast CLO issuance volumes will be in the €10-15 billion range.

Looking back at this year, increased investor appetite is identified as the greatest influence on secondary market liquidity, according to the poll. Sticking with secondary, 45% of respondents expect buyside appetite will not be matched by primary supply, and that liquidity will be deal-specific next year.

When it comes to the main barrier to developing market lending at the present time, the LMA found a close split between those citing legal uncertainty and inconsistent regional integration, while the primary factor driving developing market investment is widely seen to be the search for yield.

The survey garnered a disparity of views on where the property cycle is in Europe, while it found debt funds are likely to demonstrate the greatest growth in real-estate lending in 2015. – Staff Reports