CLO roundup: Pre-Thanksgiving flurry boosts quiet November

November, typically one of the busier months of the year for the primary leveraged loan/CLO market, has been unseasonably quiet, and with the U.S. taking time out to celebrate Thanksgiving this week, arrangers have been looking to price any CLOs they can before players begin to exit for the holiday.

As of Nov. 20 the U.S. had priced a total of $4.1 billion from eight CLOs this month, while Europe had notched up €1.28 billion from three deals.

Statistics in 2015 through Nov. 20 are as follows:

  • Global issuance is $103.26 billion.
  • U.S. issuance is $89.71 billion from 171 deals, versus $114 billion from 214 deals in the same period last year.
  • European issuance is €12.21 billion from 30 deals, versus €12.31 billion from 29 deals in the same period last year.


Story written by Sarah Husband and Andrew Park. You can follow the both on Twitter .



Sankaty prices $409M CLO via JPM; YTD total $87.8B

J.P. Morgan yesterday priced a $408.75 million CLO for manager Sankaty Advisors, according to market sources.

The pricing details for Avery Point VII are as follows:

Up to 65% of the loans can be covenant lite, according to Moody’s analysts.

The non-call period runs until December 2018, the reinvestment period ends in December 2020 and the legal final maturity is in December 2028.

In the year to date, 168 CLOs have priced for a total of $87.81 billion, according to LCD. Five CLOs have priced in November for a total of $2.19 billion.

Separately, Sankaty had announced the acquisition of four CLO portfolios from Regiment Capital Advisors totaling $1.6 billion earlier. — Andrew Park


Tilton’s Patriarch Files Suit Against MBIA as Maturity on Zohar I CLO Looms

Patriarch Partners, led by Lynn Tilton, filed suit on Monday against monoline insurer MBIA over three CLOs that trade at distressed levels. MBIA is responsible for insuring the entire principal and interest of the first two deals, which were issued in 2003 and 2005.

Patriarch is suing MBIA because it believes they were duped by the insurer into purchasing the A3 tranche of the Zohar I CLO in March of this year for $103.9 million as a condition for MBIA extending the upcoming maturity of the CLO. The previous holder of the A3 did not consent to an extension or restructuring of the CLO. The Zohar I is scheduled to mature on November 20. Patriarch had been negotiating with MBIA for some time to have the maturity date extended until January 20, 2017, when the Zohar II is also expected to mature, according to the suit.

A holder of the A3 notes on the Zohar I had previously auctioned the notes in March, and Tilton had informed MBIA that she would bid on the notes to clear the noteholder who was an impediment to the extension.

Patriarch then alleges days after the firm purchased the notes, MBIA backed away from an extension.

Patriarch’s attorneys argue that MBIA conducted an “elaborate ruse,” as the insurer never intended to an extension but rather made such an offer in order to get more of Patriarch’s money and gain leverage in further negotiations around a restructuring of the Zohar I and Zohar II CLOs.

Lawyers representing Patriarch acknowledge the difficulty the Zohar I currently faces in repaying noteholders. “The financial crisis hit the portfolio companies hard and as a result the turnarounds did not happen as quickly as had been anticipated. More time beyond the stated maturity date of Zohar I was going to be needed to create value and pay off the notes,” the attorneys for Patriarch stated. Moelis & Company was hired by Patriarch in October 2013 as a restructuring advisor to work out an arrangement between Patriarch and MBIA.

The collateral in the Zohar CLOs is much different from the issuers that are often widely syndicated in the CLO market. The companies issuing the loans are all Patriach’s portfolio companies, and include a helicopter company, fire engine company, military armored vehicle company, building supplies manufacturer, and an imaging company among many others. Those loans have then been securitized into the Zohar CLO vehicles, since Patriarch is also the collateral manager and equity holder. In the instance of a default though, MBIA would become the controlling party, according to the governing documents of the CLOs.

The complaint says MBIA was reluctant to offer an extension because the insurer still lacked “full and unfettered access to information regarding the collateral and the borrowers,” which an executive at MBIA had written to Tilton in April.

A spokesperson for MBIA stated that the firm was “disappointed by Ms. Tilton’s effort to deflect blame and attention from her own performance and legal issues,” arguing that this complaint filed is “littered with false statements.” MBIA did acknowledge though that it would honor any payment obligations associated with the upcoming maturity of the Zohar I.

The SEC also brought fraud charges against Tilton and Patriarch on March 30 over the firm’s valuation of its portfolio companies loans. “Nearly all valuations of loan assets have been reported to investors as unchanged from the time they were acquired despite many of the companies making partial or no interest payments to the funds for several years,” the charges from the SEC allege.

MBIA currently insures $151 million in Zohar I and $808 million in Zohar II as of June 30, according to Moody’s analysts on October 9. Moody’s analysts however believe that MBIA would benefit from the Zohar I and II CLOs defaulting and taking control of the assets. “A default would trigger MBIA gaining certain rights and authority over the notes, which would see them in a better position to take steps to mitigate their losses,” the analysts wrote. Moody’s had previously placed MBIA on negative watch outlook due to its exposure to the Zohar CLOs on March 2015.

While losses from a default on the Zohar I are expected to be “manageable,” according to Moody’s, the larger liability from a default on Zohar II could greatly hurt its capital position. This also comes as the insurer is set to deal with other distressed issues in its municipal bond portfolio related to Puerto Rico.

While little to no public information exisst on the underlying loans of the Zohar CLOs, the notes still trade in the secondary. The third Zohar CLO issued in 2007 is the most actively traded, and the senior-most A1 tranche has been quoted around the low 60s with yields varying wildly between the mid-teens to above 30% depending on timing of payments, according to estimates from dealers. But a number of investors were wary as those implied yields assume that the CLOs would not get extended. The A2 tranche on the wrapped Zohar II had recently been quoted around the 81 area.

A spokesperson for the plaintiff Patriarch Partners declined to comment further. — Andrew Park

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Benefit Street prices $512M CLO via Citi

Citi yesterday priced a $512 million CLO for Benefit Street Partners, according to market sources.

The pricing details for Benefit Street Partners VIII are as follows:

The deal will close on Dec. 1. The non-call and reinvestment periods end on Jan. 20, 2018 and Jan. 20, 2020, respectively. The legal final maturity is on Jan. 20, 2028. A weighted-average life test also runs for eight years after the close until Dec. 1, 2023.

Up to 60% of the loans in the portfolio can be covenant-lite, according to marketing documents.

Benefit Street Partners VIII is the third new CLO from the manager this year and the fourth deal when including the recent reset of the $415.3 million Benefit Street Partners I CLO.

Year-to-date, 159 new-issue CLOs have priced for a total of $83.71 billion, according to LCD data. In October, 11 deals have priced for a total of $5.42 billion. — Andrew Park

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CLO Managers Unswayed by Valeant Fears as Some See Opportunity

CLO managers have been re-evaluating their holdings of Valeant Pharmaceuticals in light of this week’s developments. Valeant is the largest issuer in 32 of the 528 post-crisis CLOs S&P has rated, according to S&P analysts last week, who noted the total exposure is about $2.47 billion or 0.89% of the collateral in all its rated deals.

On Wednesday, Citron Research published a disparaging report claiming that Valeant is involved in fraudulent activity through the creation of “phantom accounts” to “deceive auditors and book revenue”.

In order to further address the claims, Valeant plans to hold a conference call to discuss the allegations against the company and its relationship with specialty pharmaceutical companies, the part of Valeant’s business under scrutiny, on Monday at 8 a.m. EDT.

Despite a mid-week sell-off in the borrower’s debt and equity, CLO managers seem sanguine, with some even viewing the sell-off as an opportunity. “Any analysis of the facts as they are currently known would lead most rational debt investors to say this is way overblown,” one CLO manager said, suggesting that the selloff in the loans also presents a “huge buying opportunity”.

Valeant’s stock price was around $110 at the close Thursday, down around 25% from the price of $147 before the news. It had fallen as low as $88.50 on Wednesday, while prices on the term loans remained firm from yesterday as they were quoted in the 94s after gyrating between the low 90s to mid 90s on Wednesday. The loans were quoted at 98 before the news.

Following the activity in Valeant’s loans over the past few days, the lower prices allow CLO managers to trade out of other lower priced assets into the name without hurting their OC cushion, another CLO manager said.

Goldman Sachs analysts also echoed those views earlier this morning, saying the recent sell-off in Valeant’s debt presents attractive entry points. Even if the percentage of revenue from specialty pharmacies were to go to zero, the part of the business Citron Research suggested the revenues were fraudulent, the loans would still be well covered by the company’s overall free cash flows, the analysts said.

S&P Ratings Services yesterday issued a statement that the recent market speculation has no effect on its ratings or outlook on the company. “We don’t see the facts and reasoning in the research report as supporting evidence of the allegations of falsified invoices or channel stuffing. For these reasons, and given company comments to the contrary, we view these assertions as unfounded.” Valeant is currently rated BB– at S&P and Ba3 at Moody’s. The company’s term loans are currently rated BB+ with a recovery rating of 1 by S&P analysts.

Even if the loans are money-good, a third manager preferred to stay away from the name. “I think the bank debt will be fine, but I’m glad we are very underweight the name,” the manager said.

Some equity holders are still taking advantage of the lower prices as well. Pershing Square, which owns 19.4 million shares of the company according to the firm’s most recent SEC filings, purchased another two million shares on Wednesday, according to a spokesman for the company. — Andrew Park

You can follow Andrew on Twitter for leveraged loan/CLO market/fundraising news and insight.


CIFC hires CLO investor Klein from Prospect Capital

CIFC Asset Management has hired Robert J. Klein as a managing director leading the structured products strategies and senior portfolio manager, according to a company statement. Klein will be part of the firm’s Operating Committee, and report to co-presidents Oliver Wriedt and Steve Vaccaro.

Klein was previously at Prospect Capital Management, where he managed $1.5 billion in CLO investments. Prospect is a significant investor in CLO equity.

Before Prospect Capital, Klein was at American Capital where he was a managing director leading the private equity and financial sponsor lending teams in New York on a number of debt and equity investments, as well as American Securities and American Industrial Partners, both middle-market private equity firms. Klein began his career in the M&A group of First Boston and Morgan Stanley. — Staff reports


Golub Capital prices $408M CLO via JPM

J.P. Morgan on Friday priced a $407.55 million CLO for Golub Capital, according to market sources. This is the manager’s third broadly syndicated CLO of the year.

Pricing details for Golub 26(B) are as follows:

The deal’s non-call period will run for two years while the reinvestment period runs for four years. The legal final maturity is in 12 years.

Year-to-date this brings the total number of new issue CLOs to $81.35 billion on 154 deals. October has now seen six deals for a total of $3.4 billion, according to LCD data. — Andrew Park


CLO roundup: U.S. nets another trio, Europe sees first full refi

Three was the magic number as a trio of CLOs priced stateside last week for a total of $1.73 billion, while Europe once again failed to show up in primary—although Cairn did manage to price the market’s first full CLO refinancing. This week meanwhile, Opal’s European CLO Summit taking place in Monaco on Wednesday and Thursday could distract players, even as the U.S. pipeline builds.

Statistics in 2015 through Oct. 9 are as follows:

  • Global issuance is $91.25 billion.
  • U.S. issuance is $80.02 billion from 151 deals, versus $97.62 billion from 180 deals in the same period last year.
  • European issuance is €10.1 billion from 25 deals, versus €11.49 billion from 27 deals in the same period last year.

This analysis is part of LCD’s weekly CLO roundup, available to LCD News subscribers here


Apollo’s Galowski moves to London as co-head of structured credit

Apollo’s Jim Galowski has relocated to London as co-head of structured credit.

Currently a senior portfolio manager in the firm’s corporate structured credit division, Galowski will look to develop the firm’s global structured credit business.

Prior to joining Apollo in 2012, Galowski was a partner at Stone Tower Capital, responsible for overseeing its investment activities in structured credit. Previously, he had worked at WestLB since 1990 in New York, London, and Singapore, and prior to WestLB he was with CIBC. — Sarah Husband

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Seix Advisors hires Wu from CIFC to expand CLO business

Seix Investment Advisors has announced the hiring of John Wu as managing director of structured capital markets. Wu will primarily be responsible for the expansion of the firm’s CLO business.

Wu was previously the co-head of structured products, a senior portfolio manager, and managing director overseeing 15 CLO new issue/refinancing transactions at CIFC.

Prior to CIFC, he was the head of CLO structuring at UBS and director in global credit trading at Deutsche Bank. He began his career in the Credit Derivatives group at Goldman Sachs. – Staff reports