The U.S. CLO market is wrapping up its busiest month ever, with more than $14 billion in issuance during March, according to S&P Capital IQ/LCD. March tops off a record first quarter, which has seen $28.62 billion of activity (so far). – Sarah Husband
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
It was another busy week of marketing and pricing in the U.S. CLO market, while Europe saw a single new print, with more expected shortly.
- Year-to-date, global volume rose to $27.58 billion.
- U.S. CLO volume totals $24.84 billion for 46 deals, versus $19.92 billion for 39 deals in the same period last year.
- European CLO volume stands at €2.44 billion from six transactions, versus €2.06 billion for five deals in the same period last year. – Sarah Husband
This story was taken from a longer piece of analysis available to LCD News subscribers also detailing
- March CLOs
- CLO pipeline
- Volume: CLO vs Inst’l loans (US and Europe)
Last week was the busiest of the year for the U.S. CLO market, with seven new CLOs printing for $3.91 billion. Other busy weeks this year include the week ended Feb. 6, in which seven deals printed for $3.53 billion, and the week ended Jan. 30, in which six deals printed for $3.44 billion, according to LCD.
Europe also saw a new print, and from a first-time manager to boot. – Sarah Husband
After the busy week, year-to-date statistics are as follows:
- Global volume rises to $20.79 billion.
- U.S. CLO volume rises to $18.44 billion for 34 deals, versus $14.20 billion for 28 deals in the same period last year.
- European CLO volume rises to €2.08 billion for five transactions, versus €1.65 billion for four deals in the same period last year.
Triumph Capital Advisors has acquired the management contracts of two active CLOs from Doral. The CLOs consist of roughly $703 million in assets under management, and bring Triumph Capital Advisors’ outstanding assets under management to roughly $1.7 billion.
The development is part of the agreement of Triumph Bancorp, Inc. via its wholly owned subsidiary Triumph Capital Advisors, LLC, to acquire all the equity of Doral Money, Inc. and certain related assets in connection with the Federal Deposit Insurance Corporation’s auction process for Doral Bank. Doral Bank was placed under FDIC receivership on Friday.
In addition to the CLO management contracts, Triumph has also assumed the primary assets of Doral Money – namely loans with a face value of approximately $37 million; and certain securities of the CLOs, which were divested to a third party immediately following the closing as part of an agreement entered into by Triumph Capital Advisors in connection with the transaction.
San Juan-based Doral hired a loan investment team in 2009, with Doral Leveraged Asset Management going on to price three CLO transactions between 2010 and 2012. The first, Doral CLO I has been called.
Dallas, TX.-based Triumph Capital Advisors launched in March 2013 as the credit-focused investment-management unit of bank holding company Triumph Bancorp, and it has issued two CLOs, both last year via Nomura.
Dechert LLP acted as legal advisor to Triumph Capital Advisors with respect to the assignment of the Doral CLO management contracts. – Sarah Husband
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
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
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
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
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