Prudential prices $666.5M CLO via Credit Suisse; 16th US deal to price in July

Credit Suisse today priced a $666.5 million CLO for Prudential Investment Management, according to sources. The deal was upsized from $615.25 million.

The deal, which is the asset manager’s third new-issue CLO to price so far this year, is structured as follows:

With Prudential’s deal, CLO issuance in the year to date grows to $69.56 billion across 130 deals, according to LCD. In July, 16 deals have priced totaling $8.59 billion. – Kerry Kantin


CLO roundup: Another debut manager joins the U.S. party

After a slow start, the U.S. CLO market churned out another five deals last week totaling some $2.26 billion, thanks to a burst of activity late in the week. With no deals printing in Europe, global issuance stood at $78.40 billion through Friday, July 18.

Last week’s new-issue action included a print from yet another first-time manager, Steele Creek Investment Management. With this print, the number of first-time managers pricing deals this year grows to 11.

LCD subscribers can click here for full story, analysis, and the following charts:

  • US arbitrage CLO issuance and institutional loan volume
  • Deal pipeline
  • YTD European CLO issuance

– Kerry Kantin/Sarah Husband


TPG prices $513.5M CLO via Citigroup; 125th US CLO pricing YTD

Citigroup today priced a $513.5 million CLO for TICP CLO II Management (TPG), according to market sources. The CLO is the manager’s second, following its $479 million debut, also via Citi, in March.

It is structured as follows:

The deal has a four-year reinvestment period; the legal final maturity is July 2026.

CLO issuance in the year to date now stands at $67.15 billion across 125 deals, according to LCD. In July, 11 deals have priced totaling $6.18 billion. – Kerry Kantin



July 2014 European Leveraged Loan Market Analysis – Video, Slides

This is S&P Capital IQ’s monthly loan market update. In this post, we concentrate on the trends at work in the European leveraged loan market during 2014 so far, including an increase in M&A financing and some signs of heating in the market. We’ll also touch on the question of whether some slowdown is to be expected.



Out of the €45 billion of leveraged loan issuance so far this year, M&A-related deals contributed €25 billion, more than double what was raised in the first half of last year. This total was boosted by some jumbo corporate M&A deals, most recently  the cross-border financing for Jacobs Douwe Egberts. Among sponsor-backed buyouts, LCD tracked an increase in the number of asset sales by corporates and families, bringing some welcome debut borrowers to the loan market.


Institutional investors continued to show strong appetite for leveraged loans during the second-quarter, and heavy repayments on existing loans spurred them on. In fact repayments reached a record quarterly high of €16.6 billion, based on the S&P European Leveraged Loan Index, as the chart shows.


Adding to institutional demand, there was lively issuance of new-generation CLOs, particularly during June, including some new managers entering the 2.0 market, and sources say the pipeline for further CLO issuance in the second half of the year looks healthy.


Through much of the year so far, there has been relatively little complaint from buyside firms about leverage multiples, and indeed first-lien leverage is pretty much flat on last year at around 3.7 times EBITDA. But second-lien tranches are appearing more frequently, and this helped drive total leverage a little higher, to 4.9x. Some arrangers argue leverage is unlikely to spiral up and up because this would result in deals coming to market with low single-B ratings, these often being hard to shift in syndication.


Instead, the market is showing its aggression in other ways – particularly in the use of covenant-lite loans. €10 billion of cov-lite paper – a record – has been raised this year, meaning that roughly one in three euros sold to fund managers had no maintenance covenants. The ELLI Index now includes a 13% cov-lite portion, the highest in its history – although a long long way behind the U.S., where the trend started.


However, from the point of view of yields, Europe looks less aggressive than it did earlier in the year as this chart suggests. Behind the scenes, yields on domestic European deals were flat from the first quarter to the second. But in line with the weaker technical picture in the U.S. market, cross-border yields widened in recent months, dragging the average out too.

Looking ahead, some kind of summer slowdown is likely, but arrangers say they are pitching on some aggressively structured deals and will be looking out for signs of pushback among investors if terms get too heated.


The video is available here.

The URL for the video:

PDF slides of the video on Slideshare is available here.

URL for the slides:

While you’re on YouTube please subscribe to LCD’s YouTube Channel. That way you won’t miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email.

– Ruth McGavin


Weekly CLO pipeline at $7.92B, according to S&P Ratings

Over the past week, the pipeline of CLOs in various stages of the rating process but for which final ratings have not yet been assigned decreased to $7.92 billion, from $9.59 billion last week, according to a report from S&P’s Structured Finance Ratings Group (LCD subscribers please click here for PDF).













LCD subscribers may click here for full report and analysis, including charts.


J.P. Morgan launches U.S. CLO Index (CLOIE)

J.P. Morgan launched today the J.P. Morgan CLO Index (CLOIE). CLOIE offers total returns and analytics based on observable pricings of a representative pool of bonds following a stated methodology, and is published daily.

The index holistically captures the USD-denominated CLO market, representing over 3,000 instruments at a total par value of US $236.1 billion. It will allow market participants to track securitized loan market valuations, and complements last year’s debut of the J.P. Morgan Asset-Backed Securities Indices (ABS Indices).

CLOIE tracks floating-rate CLO securities in 2004–present vintages. Additional sub-indices are divided by ratings AAA through BB, and further divided between pre- and post-crisis vintages. CLO 2.0, or post-crisis vintages, include deals issued in 2010 and later. CLOIE utilizes a market-value weighted methodology and will be another member of the widely used J.P. Morgan benchmark suite.

J.P. Morgan clients and investors can access index levels and statistics for the CLOIE at

Pricing for the index is provided by PricingDirect Inc., a valuation vendor and affiliate of J.P. Morgan Chase Bank. – Sarah Husband


CLO roundup: Issuance continues with more to price in Europe, U.S.

Traditionally the third quarter tends to be the least active of the year for the CLO market. As yet, however, there is no sign that issuance is taking a break for the summer, with five new U.S. CLOs pricing and another four in the near-term pipeline. Europe is also not quite done, with several more managers said to be eyeing a print before the end of July. Global volume YTD stands at $76.13 billion, according to LCD.

Stateside, a comparison between this month’s issuance and last year neatly sums up the ongoing strength of this year’s new issue market. At $5.67 billion with two and a half weeks yet to go, July 2014 supply has put July 2013’s full month supply $3.37 billion in the shade.

At $66.64 billion from 124 deals, according to LCD, issuance to date is currently fourth in line to the title of largest annual tally ever behind 2006 ($97.01 billion), 2007 ($88.94 billion), and 2013 ($82.61 billion). By comparison, YTD issuance in 2013 was $43.69 for 89 deals.

LCD subscribers can click here to get full story, analysis, and the following charts:

  • Global CLO Volume
  • Deal Pipeline, US and Europe
  • European arbitrage CLO issuance and institutional loan volume

Sarah Husband


Octagon prices $770.3M CLO via JPM; AAAs at 144 bps DM; 123 US deals YTD

J.P. Morgan yesterday priced a $770.3 million CLO for Octagon Credit Investors, according to market sources. The closing date is Aug. 12, 2014.

The transaction is structured as follows:

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

It is the manager’s second new issue CLO to price this year, having priced Octagon XIX in March via Wells Fargo. The manager also priced a $321 million refinancing of Octagon XII in April via Citi.

Including Octagon’s transaction, issuance in the year to date rises to $66.17 billion from 123 deals, according to market sources. July issuance stands at $5.2 billion from 9 deals. This compares with $3.37 billion from eight deals in July 2013. – Staff reports


GSO/Blackstone to raise €200M for listed fund to feed originator CLO

gsoblackstoneBlackstone/GSO has launched the offering for its Blackstone/GSO Loan Financing Limited (BGLF) fund, ahead of a listing next week. The manager is looking to raise at least €200 million via the IPO, which is expected to become effective on July 23, according to the prospectus published yesterday. The shares will be valued at €1 each.

The fund is a newly established closed-ended investment company, incorporated in Jersey on April 30, 2014. It will provide investors with exposure to the manager’s loan originator entity, Blackstone/GSO Corporate Funding Limited, and will invest via the originator in European senior secured loans, and CLO equity from transactions managed by Blackstone/GSO Debt Funds Management Europe.

The listed fund is targeting an annual dividend of 8%, and a mid-teen total return over the medium term, according to the prospectus. The listed fund will also have 2x term non-mark to market leverage, sources said.

Dexion Capital and Nplus1 Singer Advisory are managing the listing. The placing will close on July 17, and the results of the placing will be announced on July 18.

Regarding the CLO platform, the originator, having purchased floating-rate senior secured loans, will establish new originator CLOs. Each time the originator establishes a new CLO it will transfer some or all of the senior secured loans it owns at that time to the new originator CLO, and will ensure it retains at least 51% of the CLO equity in each originator CLO.

Of note, once substantially invested the originator is expected to retain CLO equity in at least four CLOs. It is also able to invest in U.S. senior secured loans, with no limit on the maximum U.S. or European exposure.

The originator has already been investing in leveraged loans prior to this listing, via a warehouse facility financed with roughly €50 million of seed capital from Blackstone, and a €366.7 million senior loan facility from Bank of America Merrill Lynch, which will be repaid using proceeds of the sale of warehouse assets to the Phoenix Park CLO. Blackstone will invest the lower of 25% or €50 million in BGLF. – Sarah Husband


Strong issuance may overwhelm CLO market as loan spreads narrow

Impressive as CLO volumes have been of late, there are signs the market is being overwhelmed by supply. Participants warn that the CLO investor base is not yet deep enough to cope with the expected pricing of up to $100 billion of new CLOs this year. The booming CLO market is already causing loan spreads to narrow once again, threatening arbitrage and potentially undermining issuance.
Progress has been made on expanding the CLO investor base this year however. Volcker may have sidelined bank investors, but the subsequent availability of financing saw hedge funds move into the AAA space, followed by insurance companies that get favorable NAIC treatment.

What’s more, banks are starting to return. Having fallen to 42% of the indicative new issue CLO investor base for AAAs in the first quarter of 2014 from 71% in the second half of 2013, banks accounted for 56% of the AAA investor base in the second quarter of 2014, according to J.P. Morgan.

Managers are also getting creative to attract investors in others ways. CIFC included a repack/quanto swap in its recent $723 million transactionto allow yen-denominated AAAs to be sold into parts of Asia.

Meanwhile, institutional investors continue to raise new CLO investment funds, including Santaky Advisors, Fair Oaks Capital and Eagle Point Credit, sources say.

These are positive developments for sure, but in spite of them, Wells Fargo warned in its outlook for the second half of 2014 that the volume of primary issuance will make it difficult for spreads to move significantly tighter.

On average, AAA liabilities cleared at a discount margin of 145 bps in June and 150 bps for the second quarter as a whole, down from 156 bps in the first quarter, according to Wells Fargo.

Looking ahead, Morgan Stanley anticipates AAA spreads tightening to 135 bps by year-end. J.P. Morgan has a range of 135 bps-140 bps.

Pick and choose
The wealth of supply means investors can be highly selective and dictate terms for all but the most established issuers. Sources say the gap between where Tier 1 managers are printing deals and where Tier 2 and 3 managers are is as wide as it’s ever been, at roughly 20 bps now, compared to 10-15 bps in 2012.

Meanwhile, further down the capital stack, the large supply has thinned out the pool of investors for BBB/BB-rated mezzanine notes, typically hedge funds and structured credit funds. Managers and arrangers have commented that it has been much harder to fill these tranches recently, especially for less regarded managers, with mezzanine spreads softening.

Spreads across mezzanine tranches have widened as a result, perhaps as much as 15-25 bps over the past month, sources say. New issue BBB spreads are currently ranging from 415-440 bps, while BB spreads are at 615-660 bps, J.P. Morgan said in its 2014 Midyear CLO Outlook research report (note that JPM’s new issue spreads represent a range of spreads to indicate manager tiering).

Narrowing loan spreads
On the other side of the arbitrage equation, loan spreads are again narrowing. CLOs have become their own worst enemy here, filling the gap left by retail investors, and reversing the widening trend, which started with the first retail outflows in April.

The result: having widened all the way back to L+438 at the end of May, U.S. loan spreads have since retraced their steps back down to L+392, according to LCD.

For some managers, the arbitrage has been pushed to the point that they are once again rethinking whether to press ahead with plans to print their next transaction.

“The arbitrage is getting harder and harder, everyone is discounting fees and deals just don’t stand on their own,” said a manager. “Maybe you get to a 10% return on an optimistic case.”

Whether these dynamics will end up slowing the pace of new CLO supply stateside remains to be seen. Managers are motivated to issue transactions; both to replace the flow of legacy deals running off – Wells Fargo has tracked $23 billion in CLO 1.0 run-off so far this year – and to lock up AUM ahead of risk retention.

According to Deutsche Bank in its European Asset Backed Barometer research report last week, “Although US supply is at a post-crisis record, any sustained continuation of the same in the face of tightening loan spreads will be predicated upon senior CLO spreads in the primary tightening further.”

Impacting Europe
No market operates in a vacuum, and the current dynamics stateside are impacting the European CLO market, even if the arbitrage remains more favourable in Europe, helped by tighter liability spreads. European CLO equity currently offers roughly 13%, sources say.

European liability spreads remain inside those in the U.S., and there is some evidence of tightening here too, with two transactions last week securing a 3ME+135 print on the AAAs.

Further benefit could come from a general tightening of European ABS spreads on the back of the European Central Bank’s efforts to revive the securitisation market, including ABS purchases, even if the CLOs themselves are not included in the purchases. And similar to the U.S., the arrival of new investors will also help bring spreads in. Of note has been the recent entry of large European banks investing in size in the AAAs, according to sources.

However, the extent of European spread tightening still remains subject to U.S. market dynamics, given the historical trend for European liabilities to print outside of U.S. liabilities.

According to Deutsche Bank, “Senior European CLO 2.0 spreads at 140 bps also offer significant value, especially compared to peripheral RMBS. However here, we see spread tightening being held back by US product – while AAAs in the US primary have tightened recently to 140 bps, it is still on top of European spreads.”

Similarly, the relative value between the two markets means that while spreads on European mezzanine bonds have been tighter than in the U.S., they too have widened in recent weeks. “Mezzanine is much tighter in Europe, making this paper attractive only to European investors. However, these same investors look at the widening U.S. mezzanine spreads and seek wider European spreads as a result,” says one source. – Sarah Husband