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NXT Capital prices $357M CLO via Wells Fargo; AAAs at 175 bps; 19th deal in April

Wells Fargo today priced a $357.4 million CLO for NXT Capital, according to market sources. BMO was a co-lead for the transaction.

The CLO is structured as follows:

The transaction has a two-year non-call period, and a four-year reinvestment period.

Including NXT’s CLO issuance totals $32.77 billion across 64 deals, according to LCD. In April, 19 deals have priced totaling $10.13 billion. – Sarah Husband

 

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YouTube video: April 2014 European leveraged loan market analysis

LCD’s video analysis detailing the European leveraged loan market during March and 2014′s first quarter is now on YouTube.

Of note is the imbalance created by thin supply and vigorous demand, which is causing conditions in the market to become increasingly issuer-friendly. The loan market definitely felt livelier in terms of new issuance, with a mix of new buyouts and opportunistic refinancing and repricing activity coming over the horizon. The elephant in the waiting room is Numericable, which has lined up a huge covenant-lite M&A financing to back its bid for SFR.

This month LCD looks at:

  • Annual senior loan volume
  • Annual arbitrage CLO volume
  • Average TLB primary spread and yield to maturity
  • Annual pro forma debt/EBITDA ratios of LBOs
  • Quarterly Index returns (excluding currency)
  • Forward pipeline volume as of April 4, 2014


The video is available here.

Click here to download PDF slides of the video on Slideshare.

While you’re on YouTube please subscribe to LCD’s YouTube Channel. That way you’ll be certain not to miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email, or here:

http://www.youtube.com/user/LCDcomps

If you’d like to embed any LCD video on a web page or in other digital media, it’s simple via the “embed” button on the YouTube page for the video. You can also embed the slides via Slideshare.

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CLO Pipeline: Supply Continues Apace Despite Volcker Disappointment

The primary CLO market stayed busy last week, with LCD tracking seven new CLOs pricing in the U.S., for a total of roughly $3.56 billion, a touch inside last week’s $3.57 billion, which was the largest weekly new-issue tally of the year. Things were quieter in Europe, with Alcentra expected to be the next manager to print a European CLO several weeks down the line (see below). Global issuance for the week stood at $3.56 billion, according to LCD.

Part of this past week’s supply likely results from arrangers and managers wanting to clear the near-term decks ahead of the pending Easter break, as well as the IMN’s Third Annual Investors’ Conference on CLOs and Leveraged Loans, taking place in New York on April 22-23. As a result, new CLO pricing activity could take a breather over the next couple of weeks.

Still, with this past week’s impressive tally, YTD issuance through April 11 has now overtaken last year’s supply over the same period, at $29.77 billion versus $26.92 billion, according to LCD. It’s the first time in 2014 that issuance has run ahead of last year, following a quieter-than-usual January.

Again supply came from a mix of established platforms, as well as another brand new manager – Bradford & Marzec. Of note, Prudential’s jumbo $811.75 million CLO – the second largest cash-flow CLO transaction of the year behind CIFC’s $829 million CIFC Funding 2014-II – priced its AAAs inside 150 bps, at 148 bps (DM).

Halcyon Loan Advisors Funding 2014-2 is expected to price today via Citi, after all tranches except the BBs were subject by Friday. The same arranger is also looking to price a refinancing of Octagon Investment Partners XII for Octagon Credit Investors this week.

Meanwhile, Deutsche Bank is working on a $512.58 million CLO for Benefit Street Partners, while Steele Creek (via BNP), Aegon USA Investment Management (Jefferies), and Saratoga Investment Corp. (via Cohen & Co) are among those in the pipeline.

Across the pond
Europe’s next transaction may not appear until after the Easter break, with Alcentra likely to be the next out of the door in the next couple of weeks. Oaktree is rumoured to be three-to-four weeks away with its debut European CLO 2.0 (via Barclays), and behind that are Pramerica (via Barclays), 3i (via CS), Carlyle (via Citi), and Avoca (via Morgan Stanley).

YTD European CLO issuance stands at €3.02 billion, versus €600.5 million in the year-ago period, according to LCD.

Alcentra is working with J.P. Morgan on its second CLO 2.0 of the year, having priced an upsized €413.5 million CLO – Jubilee CLO 2014-XI – in January.

Both CLOs are structured via Rule 3a-7, which allows the Bank of New York-owned manager to retain bonds in the collateral pool while still exempting the vehicle from the final draft of the Volcker Rule.

Volcker moved back into focus this week after the Fed’s decision to grant banking entities two one-year extensions to the conformance period under the Volcker Rule, to July 21, 2017. The move minimizes the impact of the rule for 1.0 CLOs, as the vast majority of the current $135 billion CLO 1.0 universe is expected to have amortized or been repaid by then. However banks holding CLO 2.0 deals will still need to comply with the rule, which doesn’t permit them to own positions in CLOs that hold bonds.

In response, the LSTA said the two-year extension “does not solve the problem”. Market participants had been hoping for a more permanent fix, akin to that proposed by the legislation drafted by Rep. Barr, which would grandfather all CLO debt issued before Jan. 31, 2014. There’s speculation among some market participants that regulators won’t take any other actions regarding the Volcker Rule. As for the legislative route, sources say it would be difficult to get bipartisan support for the Barr Bill beyond the committee level, as Democrats have little or no desire to circumvent the regulators.

If the vast majority of the current $135 billion CLO 1.0 universe is expected to have amortized or been repaid by July 2017, the bulk of CLO 2.0s issued after 2009 (roughly $140 billion, according to Wells Fargo’s David Preston) could still be outstanding after July 2017.

Included among the possible solutions for this batch of CLOs with regards to Volcker compliance/exemption are refinancing, amendments to exclude bonds, bond removal from portfolios, inclusion of existing manager removal clauses (“for cause” removals and “key manager” clauses) as events of default, and as a last fix, waiving manager removal rights.

For European managers structuring deals as loan-only is a non-starter for most given the reliance of European CLOs on the bond market to boost collateral pools, so any that do need to structure Volcker-compliant deals will have to utilise 3a-7, or eliminate the ‘removal for cause’ clause for the controlling class, which would exempt the CLOs from Volcker.

But Europe generally has been more relaxed about structuring Volcker compliant/exempt deals, as aside from JPM CIO, U.S. banks do not tend to invest in European CLOs, and European investors appear less focused on liquidity, sources say. – Sarah Husband

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US CLO Market Sees Busiest Week Of Year

Issuers got right down to business as the second quarter got underway, with no fewer than five CLOs pricing in the U.S., along with one in Europe. In the U.S., week ending April 4th’s $2.75 billion supply total was the highest of the year, just topping the $2.7 billion issued in the week ended March 14, according to LCD. Week ending April 4th’s surge comes after March saw $11.15 billion of issuance, the highest monthly tally since May 2007, when $10.82 billion priced. Global supply for the week stood at $3.26 billion, including $514 million from European issuers, according to LCD.

Global supply for the week stood at $3.26 billion, including $514 million from European issuers, according to LCD.

Included among the offerings stateside last week were three broadly syndicated CLOs from established managers and two middle-market CLOs, as well as two refinancings (LCD does not count refinancings in its volume figures).

New CLO supply in the U.S. in the year to date stands at $25.38 billion, versus $26.61 billion during the same period last year, according to LCD.

In addition, CIFC Asset Management priced a $724.49 million CLO (CIFC Funding 2014-II) via RBS last Friday, which LCD has not yet included in its volume figures.

GSO/Blackstone was busy on both sides of the Atlantic, pricing Pinnacle Park in the U.S. and Holland Park in Europe. The former secured a tight print of L+150 on its AAA tranche, while the latter was the largest CLO to price in Europe this year.

The average U.S. AAA spread remains at 155 bps, so Pinnacle Park’s print was eye-catching. Expectations are that liability spreads will contract a little over the coming quarter, with a recent investor survey by J.P. Morgan indicating AAA spread expectations of L+135-155 and Wells Fargo’s David Preston predicting a tightening to L+140-145. Still, ongoing heavy supply will prevent too much tightening.

Any narrowing of liability spreads, along with softer secondary loan prices as retail investors’ enthusiasm for loans eases, would create a less challenging backdrop for CLO managers trying to ramp deals. But it would likely ensure that issuance remains heavy over the coming months. The pipeline certainly remains healthy, sources say, with more first-time managers looking to price deals over the next quarter.

Managers looking to price deals in the near term include:

  • GC Investment Management (Golub Capital Partners CLO 19B), via Citi (this week)
  • Bradford & Marzec (B&M CLO 2014-10, via Credit Suisse (this week)
  • Halcyon Loan Advisors (Halcyon Loan Advisors Funding 2014-2), via Citi (next week)
  • Telos Asset Management (Telos 2014-5 CLO) via BNP Paribas

Also in the pipeline are Steele Creek (via BNP), Aegon USA Investment Management (Jefferies), Saratoga Investment Corp. (via Cohen & Co).

Refinancings have been a big theme this year, and last week saw another two managers reduce their cost of funding, bringing the total number of CLO refis this year to six, according to LCD.

BNP Paribas priced a refinancing of all debt tranches of LCM Asset Management’s 2012-vintage LCM X transaction, reducing the coupon on the $259 million triple-A tranche to L+126, from L+148. And Citi priced a refinancing of all of the debt tranches of Invesco’s 2012-vintage Avalon IV CLO. The transaction reduces the coupon on the $231 million triple-A tranche to L+117, from L+150. The refinancing priced at par.

Across the pond
European issuance continued last week with GSO Blackstone’s Holland Park, via BNP Paribas. This transaction is GSO’s fourth European CLO 2.0, and it follows the €615.7 million Richmond Park, which priced via Citi in December.

Holland Park marks BNP’s return to the European CLO market, and it follows Goldman Sachs’ return last week, when it priced CVC Cordatus Loan Fund III for CVC Credit Partners. The addition of two more arrangers should be encouraging to those managers concerned about the relatively thin arranger base, which some blame for the slow feed of new deals to market.

But while the arranger base might be thin, investors in the European CLO market are also keen to see a more diverse manager pool. As a result, there was great interest in CVC Cordatus Loan Fund III CLO, which was structured via the originator method to comply with European risk-retention regulations. The originator structure is not new to the U.S. market, and it has been used by managers such as Canaras Capital Management, KKR, and Black Diamond, as well as by BDCs. But it is the first time a European manager has ventured from the more accepted sponsor route, and there are hopes that it could potentially open up the market to a broader number of European managers.

Notably, Saranac Advisory (Canaras Capital Management) just closed Saranac CLO II via Jefferies, which is another U.S. CLO to use the originator structure.

Including GSO’s deal, issuance in the year to date in Europe stands at €3.02 billion from seven deals, according to LCD.

Looking ahead, however, it could be a few weeks before the next pricing, sources say. Alcentra (via J.P. Morgan) could well be the next manager to print in Europe, making it the first to price two deals this year, sources say. Others targeting second-quarter deals are CELF Advisors (via Citi), 3i Debt Management (via CS), Avoca (via MS), and Oaktree (via Barclays).

– Sarah Husband

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Telos prices $412M CLO via BNP Paribas; AAAs at L+155; 58 deals YTD

BNP Paribas on Friday priced a $412 million CLO for Telos Asset Management, according to market sources.

The transaction was upsized from $362 million.

The CLO is the manager’s fifth CLO and its third 2.0 vehicle, and is structured as follows:

The collateral pool will consist primarily of U.S.-dollar-denominated first-lien senior secured bank loans, and 85% of the current ramped portfolio consists of loans larger than $300 million. The portfolio is expected to be over 50% ramped at pricing.

The CLO is not permitted to include secured or unsecured bonds, or FRNs.

It has a roughly two-year non-call period, a roughly four-year reinvestment period, and a roughly 11-year final maturity.

Global credit manager Telos has roughly $1.5 billion in assets under management.

Including Telos’ deal, CLO issuance in the year to date rises to $29.77 billion across 58 deals, according to LCD. In April, 13 deals have priced, totaling $7.14 billion. – Sarah Husband

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Prudential prices $811.75M CLO via Goldman Sachs

Goldman Sachs today priced a $811.75 million CLO for Prudential Investment Management, according to market sources.

The transaction is the manager’s second new issue CLO to price this year, after the pricing of Dryden 31 Senior Loan Fund via Deutsche Bank at the end of January. Prudential also priced a refinancing of Dryden XXII via RBS in January.

The transaction, which is backed by a pool of at least 90% senior secured loans, is structured as follows:

The transaction has a two-year non-call period (July 2016), a four-year reinvestment period (July 2018), and a 12-year stated maturity (July 15, 2026).

With Prudential’s deal, CLO issuance in the year to date rises to $28.48 billion across 55 deals, according to LCD. In April, 10 deals have priced, totaling $5.85 billion. – Sarah Husband

 

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CLO problem not solved by Fed’s 2-yr Volcker extension, says LSTA

The Federal Reserve Board announced yesterday that it will give banking entities two additional one-year extensions to conform their ownership interests in and sponsorship of certain CLOs covered by the Volcker rule. The conformance period currently runs through July 2015, and the extensions would give banks until July 21, 2017 to either work with CLO managers to amend non-compliant CLOs, or divest of such investments. The extension applies only to CLOs issued prior to Dec. 31, 2013.

For a copy of the Federal Reserve Board’s statement, click here:

Under the Volcker Rule, CLOs that own bonds and are issued under Rule 3c-7 are ‘covered funds,’ and banks cannot have an ownership interest in 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 EOD.

The extension is helpful in that it would reduce the impact of Volcker for the vast majority of CLO 1.0s. RBS CLO strategist Ken Kroszner, in a research note issued in response to yesterday’s announcement, says “nearly all legacy CLOs will have amortized by July 2017, so this amendment will likely remove some regulatory risk related to holding these positions for banks. The current 1.0 universe totals $135 billion and we have forecasted a $50 billion run-off in 2014 alone.”

However, the extension does not address the impact of Volcker on CLO 2.0s that will remain outstanding after July 2017. U.S. CLO 2.0s issued during 2014 have generally been structured as Volcker compliant, but the extension would leave uncertainty around the CLO 2.0s issued before 2014 – many of which are likely to be outstanding in July 2017.

“We expect that a vast majority of 2013 vintage CLOs ($80 billion issued in 2013) and most 2012 vintage deals ($55 billion issued in 2012) will still be outstanding at that time given most of these deals were issued with 4-year reinvestment periods. The success of refinancing CLOs with ‘Volcker compliant language’ may help mitigate some of this risk down the road as nearly all of these deals will end their non-call periods before 2016 thereby leaving more than a 1.5 year buffer for most CLOs,” said Kroszner.

As such, although it provides holders of non-compliant CLO debt with additional time to either amend or dispose of this paper, the proposal would fall short of the solution proposed by the Barr Bill, which was approved by the House Financial Services Committee (FSC) last month. That legislation would provide for the grandfathering of all CLO debt issued before Jan. 31, 2014, where the only indication of ownership interest is the ability to participate in ‘for cause’ manager removal.

In response to yesterday’s announcement, the Loan Syndications and Trading Association (LSTA) says the extension will not solve the problem, and that issuing a comprehensive rule that would completely grandfather CLO notes issued prior to the publication of the final rule is needed in order to divert impairment of the CLO market.

“While the LSTA appreciates the Federal Reserve’s efforts to mitigate the damage that the final rule implementing the Volcker Rule would cause to banks holdings of CLO AAA and AA rated notes, a two-year extension of the conformance period does not solve the problem,” said Elliot Ganz, general counsel and executive vice president for the LSTA.

“In its recent cost-benefit analysis, the OCC estimated that the forced divestiture of CLO notes by banks required under the Volcker Rule could cost U.S. banks up to $3.6 billion,” said Meredith Coffey, executive vice president of research & analysis for the LSTA. “In contrast, the expected credit losses on banks’ holdings of CLO notes are less than $2 million. It is ironic that the Volcker Rule, which is designed to limit banks’ investments in risky assets, would force banks to realize billions of dollars of losses in a very safe investment, due to a fire sale.”

Meanwhile, Congressman Scott Garrett, Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, issued a statement yesterday instructing the U.S. financial regulators to go back to the drawing board on their impending “fix,” or risk having it done for them.

“Since the banking regulatory community is unwilling to correct their mistakes, Congress must do it for them. To be frank, this might also have to include Congress looking to make changes to the law such as subjecting these agencies to the appropriations process and further consolidation,” he said. – Sarah Husband

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Golub prices $410.5M BSL CLO via Citi; AAAs at 158 bps DM

Citi today priced a $410.5 million CLO for GC Investment Management, according to market sources.

The transaction (backed by 100% senior secured loans), is the firm’s fifth BSL CLO since the crisis and is structured as follows:

The reinvestment period ends on April 26, 2018, and the stated maturity is April 26, 2026.

Prior to 19B, Golub Capital priced its first 2014 CLO on Feb. 27, via Wells Fargo. The $453.12 million transaction (18M) was the manager’s eighth middle-market CLO, and fifth 2.0 middle-market deal.

Including Golub’s transaction, issuance in the year to date stands at $25.79 billion from 51 deals, according to LCD. April has so far seen $3.16 billion in volume from six deals. – Sarah Husband

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Trimaran Advisors prices $467.9M CLO via Citi

Citi has priced a $467.925 million CLO for Trimaran Advisors, according to market sources.

The deal was upsized from $414.35 million, and is structured as follows:

Of note, Trimaran and/or its affiliates have committed to purchase up to 24.9% of the equity, according to sources.

The reinvestment period ends on April 20, 2018, and the stated maturity is April 20, 2026.

Trimaran Advisors was founded in 1998 as a credit-based alternative-asset-management firm. Trimaran and its affiliates currently manage $3.2 billion of below-investment-grade corporate loans across 11 CLOs.

Including Trimaran’s deal, issuance in the year to date rises to $23.37 billion from 46 deals, according to LCD. This is the second deal to price in April for a total of $1.09 billion. March volume stood at $10.8 billion. – Sarah Husband