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Free Download: LCD’s CLO Weekly Review

LCD’s CLO Weekly Review offers comprehensive news, trend analysis, charts, and calendars detailing the U.S. and European collateralized loan obligation markets.

Here’s some of what’s you’ll receive in each CLO Weekly Review.

CLO snapshot

 

  • Details on recent CLO Global CLO issuance, including pricing
  • CLO issuance, vs outstandings
  • Near-term CLO pipeline
  • US, European market wrap-ups
  • LCD’s CLO Dashboard: risk retention, primary/secondary spreads
  • LCD’s Loan Market Snapshot: Issuance, outstandings, defaults, prices

 

 

 

 

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LCD is an offering of S&P Global Market Intelligence.

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GreensLedge Prices $433M Anchorage Credit Funding CDO

GreensLedge Capital Markets today priced a $433 million CDO for Anchorage Capital Group, according to market sources.

Natixis Securities Americas was also a co-lead manager on the transaction.

Pricing details are as follows:

Anchorage CDO 2016-07-22

Similar to Fortress’s $633.6 million FDF Limited II, which priced on April 15, the transaction can hold up to 65% in second-lien loans and unsecured bonds.

The transaction will close on Aug. 29 with a non-call period ending on Oct. 28, 2018 and a reinvestment period ending on Oct. 28, 2021. The legal final maturity is on Oct. 28, 2033. — Andrew Park

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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3i DM prices €452M CLO via Credit Suisse

Credit Suisse today priced a €452 million CLO managed by 3i Debt Management Limited, according to market sources.

Pricing details are as follows:

The transaction has been structured as an originator CLO following the European referendum vote. The manager had previously only issued sponsor transactions to meet the European risk-retention requirements.

The closing date is on September 14 with a non-call period running until October 15, 2018 and reinvestment period until October 15, 2020. The final maturity is on October 15, 2029.

This is the second European CLO for 3i this year, having closed the €413 million Harvest XV CLO on May 12. This was structured as a sponsor transaction, with 3i retaining at least 5% of the transaction via the equity tranche. For Volcker, the transaction included voting, non-voting, and non-voting exchangeable tranches.

To date the manager has issued eight European CLO 2.0s since September 2013. As of Sept. 30, 2015, 3i DM managed 35 funds and had total assets under management of roughly $11.3 billion.

Year-to-date issuance is €8.95 billion from 22 transactions. This is the fourth CLO in Europe for a total of €1.74 billion. — Staff reports

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Credit Suisse Asset Mgmt Prices Hefty $814M CLO

Citi on Friday priced an $814.25 million CLO for Credit Suisse Asset Management, the manager’s second CLO of the year, according to market sources.

The manager will retain a 5% vertical slice in order to comply with U.S. risk retention.

Pricing details are as follows:

The transaction will close on August 25, with a non-call period ending in July 2018 and reinvestment period ending in July 2021. The stated maturity is in July 2029.

Year-to-date issuance is now $28.83 billion from 67 CLOs, according to LCD data. July’s totals are now $2.6 billion from five transactions. — Andrew Park

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Fed Extends ‘Volcker Rule’ Deadline, Giving CLO Market Breathing Room

The Board of Governors of the Federal Reserve has extended the deadline for banks to comply with the Volcker Rule for one additional year until July 21, 2017.

quarterly CLO issuance

CLOs under the final Dodd-Frank rules in December 2013 were classified as “covered funds” if they include bonds in their collateral pool. Depository institutions or other companies affiliated with an insured depository institution are prohibited from trading non-compliant CLOs in their own book or retaining them.

The Federal Reserve Board in December 2014 previously extended the compliance deadline to July 21, 2016 and at that time expressed its openness to a further extension, which was formally announced yesterday.

The additional extensions have been important for both banks and CLO managers as banks have not been forced to sell non-compliant CLOs while also working with CLO managers to issue compliant structures since the rule was announced to minimize the impact, the LSTA said in response to the announcement.

The Federal Reserve Board reached its conclusion to allow for the extension after also consulting with the Office of Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), and Commodity Futures Trading Commission (CFTC). — Andrew Park

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Post-1.0, Pre-Brexit: European CLO Issuance Hits Record €4.56B in 2Q

European CLO issuance

CLO issuance in Europe rose to €4.56 billion in the second quarter from €2.64 billion in the first, marking the highest such volume in the European ‘2.0’ market’s brief three-year history, according to LCD, an offering of S&P Global Market Intelligence.

The improved market sentiment going into the second quarter — and the strong motivation among arrangers to de-risk from the warehouses amassing on their balance sheets via the CLO take out — helped fuel issuance from March onward.

But the key factor was the abundance of triple-A appetite, much of it flowing out of Asia, which intensified the competition for senior paper and helped drive senior liability spreads down to E+128, from E+150 at the start of the year.

But if AAA demand was abundant, loan supply was less so, and this was cited as a key concern by managers during the past quarter. Managers also had to handle increasing opportunistic transactions, although the Brexit vote has put an end to the flow of refinancings for now.

June had racked up a healthy volume of €1.64 billion, and was set to go higher still until the Brexit vote brought supply to a temporary halt, leaving year-to-date issuance at €7.21 billion. – Sarah Husband

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Leveraged Loans: Accunia Prices 1st European CLO Since Brexit Vote

Deutsche Bank has priced an upsized €421.23 million CLO for Nordic asset management firm Accunia Credit Management, according to market sources. This is the first transaction to price since the Brexit vote last month, and Accunia is based in Denmark. The transaction, which is the first for the manager was upsized from €360.49 million.

The collateralized loan obligation transaction is structured as follows:

Accunia CLO 2016-07-05

Of note, PGIM (Pramerica) is appointed as designated successor manager.

The settlement date is Aug. 4, 2016, and the transaction has a two-year non-call period, a four-year reinvestment period and a 13-year legal final maturity.

All the liabilities are set with 0% Euribor floors. The vehicle is currently roughly 44% ramped, with a three-month ramp-up period from closing.

Accunia intends to comply with European risk retention via a vertical strip as sponsor, while for Volcker, the transaction documentation includes language around manager-replacement rights, with separate voting, non-voting, and non-voting exchangeable tranches.

Including Accunia’s transaction, European CLO issuance rises to €7.63 billion from 19 CLOs, according to LCD, an offering of S&P Global Market Intelligence. This is the first CLO to price in July. — Sarah Husband

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Better, but not Good: US 2Q CLO Issuance Jumps to $18B

 

quarterly CLO issuance

U.S. CLO issuance totaled $17.99 billion via 42 vehicles in the second quarter.

While that’s more than a two-fold increase from the $8.2 billion of issuance in the first quarter, it’s at the very low end of the recent range over the past three years, according to LCD, an offering of S&P Global Market Intelligence.

Year to date, U.S. CLO issuance totals $26.23 billion via 62 vehicles.

As was the case in the broader leveraged loan market, sentiment improved in CLOs in the second quarter, but the market was still far from robust. Issuance remained heavily biased towards seasoned managers, with a few exceptions.

Keeping the market in check: The upcoming Dec. 24 deadline to comply with risk retention, challenging arbitrage, and difficulty sourcing collateral, loan managers say. And, of course, macroeconomic risk surrounding Brexit presents a new challenge. – Kerry Kantin

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This story is part of analysis which first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Europe’s CLO Market Keeps Calm After Brexit, Prepares for Challenges Ahead

Instead of waking up to the prospect of buoyant markets, and the expectation that primary activity would restart in the wake of a Remain vote in yesterday’s referendum, CLO players were instead rudely awakened with the early morning news that the U.K. has voted to leave the European Union.

Now all bets are off when it comes to primary issuance as players try and make sense of the outcome, and figure out their next steps. And the handful of managers — Accunia among them — who were gearing up to price deals will likely have to wait and see how investors react.

European CLO issuance

That’s a deep shame, given how the market had recovered from the troubles of the first quarter. Had the vote gone the other way, June could have notched up the highest tally of CLO issuance this year, with several more transactions gearing up to price this month.

Month-to-date issuance currently stands at €1.64 billion, while year-to-date issuance stands at €7.21 billion, according to LCD, an offering of S&P Global Market Intelligence.

There was a clear sense of shock among market players this morning, but while some have forecast the migration of key asset manager operations to Ireland and/or the Continent, for the majority it is far too early to draw any conclusions, especially given the perceived length of any Brexit process. Instead, most prefer to focus on the positives — and perhaps dealing with so many regulatory knockbacks over the years has embattled them. A period of uncertainty and primary market standstill is inevitable, but that there are many reasons why issuance should resume again.

The fact that U.K. corporates form a smaller share of the European CLO market is a positive factor in the event of a U.K. recession. J.P. Morgan CLO research analysts estimated in February that European CLO 2.0s hold roughly 13.2% in U.K. assets, while Citi’s CLO research analyst Ratul Roy in a client Credit Flash today puts the average U.K. corporate risk at roughly 11% of a typical portfolio. Roy does, however, note that two of the five sectors these U.K. assets are concentrated in are retail and banking, which are likely to be more volatile than the other three — namely chemicals, food & beverage, and hotel & leisure.

Primary spreads, having marched all the way in to E+128 at the AAA level, are expected to widen again, which could impact arbitrage, although on the asset side presumably the news will stem further opportunistic transactions in the loan market. “Long-run demand will be driven by how much CLO spreads widen relative to loan spreads, ie. by future arbitrage, and the default environment not worsening significantly,” said Deutsche Bank CLO research analysts in a note published last night.

Warehouses
For those with a warehouse open meanwhile, the current volatility may present a good opportunity to get ahead with the ramp via the weaker loan and bond secondary market. “If you have capacity to deploy cash, it’s a good buying opportunity. But it is hard to see any new-issue deals coming for some time,” said one manager.

Sources suggest a number of new warehouses have been signed in the run up to the vote, although others had been held back by their more cautious first-loss providers, who preferred to wait until after the referendum before committing to a new facility. “I have been quiet these past few weeks,” said one investor. “I have cash stored up ready to invest in the credit markets, but I would have just looked stupid if I put the money to work the week ahead of the vote and it went the wrong way.”

The decision to wait looks eminently sensible now, but players remain hopeful that investors will remain engaged. Ramping conditions may have improved from a secondary perspective, but the key question here is the plausibility of the CLO takeout, and how much investors are going to care now about the legal ambiguity of a manager potentially based outside the EU, versus in two years’ time, noted one manager.

CLO investors will be a key part of restarting primary, and many have money to put to work. Some, especially at the lower part of the stack, may prefer to invest in the CLO secondary, but senior paper is harder to source here. The ECB-driven hunt for yield may also keep European investors focused on the market, even if some more-conservative parties hold back.

Citi’s Roy urges caution regarding secondary opportunities, noting that European CLO holders may not have the appetite for volatility. “With dealer balance sheets likely to be constrained, spread swings are likely to be amplified across the entire stack.”

Regulation and risk retention is the other key issue — and ironically concern around Paul Tang’s STS proposals pales in comparison with the huge task of ahead from a regulatory perspective. “Even if Brexit eventually results in retention requirements not being part of U.K. laws, they still of course will apply for EU investors,” said Franz Ranero, partner at A&O. “My concern is that yesterday’s vote puts us on the back foot in the current political dialogue regarding securitisation regulation, and somehow seen as lesser stakeholders.”

U.K. CLO managers have discussed with their legal counsels the loss of passporting privileges that allow them to qualify as sponsors for risk retention, and how to alleviate any investor concern around this issue to try and help get the primary market moving.

“Expect pre-baked originator switch mechanics to be included in all sponsor structures and less focus on the Tang report,” said John Goldfinch, partner at Milbank. “Loan prices are down, so there are lots of cheap assets to purchase, and it is difficult to find a more stable product for generating real return than a CLO, so I do see some positives, oddly enough.”

The negotiation of bilateral agreements between the U.K. and E.U. concerning the CLO market is considered achievable during the two-year exit withdrawal period, given CLOs represent a key source of funding for European corporations. Meanwhile, should the U.K. successfully negotiate staying in the EFTA, then the pressure is off completely, sources said. — Sarah Husband

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.