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CLO Round-up: With SEC clarity re risk-retention (finally), an active week

global CLO volume

After a sluggish start to the month, it was an active week in the U.S., both in terms of new issues and on the regulatory front. Four U.S. new-issue transactions priced, while in Europe, AXA Investment Managers priced the third deal of the month, a €362.3 million transaction, via J.P. Morgan. Through Friday, July 24, global issuance rises to $73.67 billion.

The SEC provided much-awaited guidance that CLOs issued prior to Dec. 24, 2014 – the date the final risk-retention rule was published – will be able to refinance debt tranches under certain conditions after the rule takes effect in December 2016 without being subject to risk retention. The SEC’s position is reflected in a July 17 no-action letter in response to a request from Crescent Capital Group. It provides the market with clarity around the refinancing issue, which has been a topic of discussion since the final risk-retention rule was first published in October 2014. – Kerry Kantin/Isabell Witt

Year-to-date statistics, through July 24, are as follows:

  • Global issuance totals $73.67 billion
  • U.S. issuance totals $63.94 billion from 120 deals, versus $71.11 billion from 133 deals during the same period last year
  • European issuance totals €8.75 billion from 22 deals, versus €6.92 billion from 16 deals during the same period last year

 

This analysis is taken from a longer LCD News story, available to subscribers here, that also details

  • Recently priced CLOs
  • CLO pipeline
  • US CLO volume/outstandings
  • European CLO volume/outstandings
  • European priced CLOs

 

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Tikehau hires Goold for European CLO business

Alison Goold has joined Tikehau as a portfolio manager in its European CLO business. In this new position, Goold will report to Debra Anderson, head of the CLO department.

Goold joins from BNP Paribas, where she had been a director in the leveraged syndications team. Previously she had been head of corporate credit and a portfolio manager at AgFe, an independent advisory and asset management firm, and before that was a managing partner at mezzanine fund manager Carta Capital.

Tikehau recently priced its debut €354.7 million CLO through Goldman Sachs. – Nina Flitman

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AssuredPartners’ buyout by Apax backed by BAML, RBC, MS

Bank of America Merrill Lynch, RBC Capital Markets, and Morgan Stanley have provided committed debt financing to back Apax Partners’ acquisition of insurance brokerage AssuredPartners from GTCR.

Sources indicate the debt financing will be U.S.-focused.

AssuredPartners is one of the largest insurance brokerage firms in the U.S. It was formed in 2011 as part of a strategic partnership between private equity firm GTCR and the company’s CEO and COO. It has offices in more than 30 states, the District of Columbia, and London. – Nina Flitman

 

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Online Loan Primer/Almanac updated with 2Q numbers, charts

LCD’s online Loan Market Primer has been updated to include second-quarter 2015 and historical volume and trend charts.

The online Primer can be found at LevergedLoan.com, LCD’s free website promoting the leveraged loan asset class. LeveragedLoan.com features select stories from LCD news, as well as weekly loan market trends, stats, and analysis.

We’ll update the Primer charts regularly, and add more as the market dictates (new this time around: LCD’s “What is a Leveraged Loan” explainer video).

Charts included with this release of the Primer:

The Loan Market Primer is one of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, it is widely used by originating banks, institutional investors, private equity shops, law firms and business schools worldwide.

Check it out, and please share it with anyone wanting an excellent round-up of or introduction to the leveraged loan market.

Here’s the Primer table of contents (go online to see the submenus for each category):

  • What is a Leveraged Loan?
  • Market background
  • Leveraged Loan Purposes
  • How are Loans Syndicated?
  • Types of Syndications
  • The Bank Book
  • Leveraged Loan Investor Market
  • Public vs. Private Markets
  • Credit Risk – Overview
  • Syndicating a Loan – by Facility
  • Pricing a Loan – Primary Market
  • Types of Syndicated Loan Facilities
  • Second-Lien Loans
  • Covenant-Lite Loans
  • Lender Titles
  • Secondary Sales
  • Loan Derivatives
  • Pricing Terms/Rates
  • Fees
  • Original-Issue Discounts
  • Voting Rights
  • Covenants
  • Mandatory Prepayments
  • Collateral
  • Spread Calculation
  • Default/Restructuring
  • Amend-to-Extend

 

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High yield bond prices rebound after two-week slump

The average bid of LCD’s flow-name high-yield bonds advanced 49 bps in today’s reading, to 99.92% of par, yielding 6.71%, from 99.43% of par, yielding 6.89%, on July 9. Gains were broad based within the sample, with 11 on higher ground against three unchanged and one decliner.

Today’s positive observation is the first gain after a two-week slump. It wipes out Thursday’s 16 bps decrease, for a net gain of 33 bps week over week, but with the recent losses, the average is negative 80 bps over the past two weeks and negative 72 bps in the trailing-four-week reading.

The rebound comes alongside modest equity market gains since Greece’s deal over the weekend. However, it’s been fairly tenuous in high-yield as participants continue to keep an eye on U.S. Treasury rates and commodity prices.

The average bid sits at positive 422 bps for the year to date.

Recall that prior to sample revisions at the start of the year, the average bid had plunged to a three-year low of 93.33 on Dec. 16. However, a snap-back rally followed, and the average bid closed the year at 96.4, for a total loss of 536 bps in 2014.

With today’s increase in the average bid price, the average yield to worst slipped 18 bps, to 6.71%, but the average option-adjusted spread to worst cinched inward by 29 bps, to T+506. The greater move in spread as compared to yield can be linked to the weakness in the Treasury market of late, as rising yield encourages spread-to-Treasury compression.

Today’s reading in the flow names is wider than with broad index yield, but fairly in line with spread. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed yesterday with a 6.4% yield to worst and an option-adjusted spread to worst of T+484.

For further reference, take note that a June 24, 2014 reading of 106.98 – close to the February 2014 market peak of 107.03 – had the flow-name bond average yield at 5.02%, an all-time low, but spreads weren’t quite there. Indeed, the average yield was 7.63% at the prior-cycle peak in 2007, and the average spread at the time was T+290.

 

Bonds vs. loans
The average bid of LCD’s flow-name loans increased 19 bps in today’s reading, to 99.82% of par, for a discounted loan yield of 4.13%. The gap between the bond yield and discounted loan yield to maturity stands at 258 bps. – Staff reports

The data:

  • Bids rise: The average bid of the 15 flow names advanced 49 bps, to 99.92.
  • Yields fall: The average yield to worst slipped 18 bps, to 6.71%.
  • Spreads tighten: The average spread to U.S. Treasuries cinched inward by 29 bps, to T+506.
  • Gainers: The largest of the 11 gainers, Dish Network 5.875% notes due 2022, added two full points, to 100.75.
  • Decliners: The lone decliner, Intelsat 7.75% notes due 2021, shed 1.5 points, to 79.5.
  • Unchanged: Three of the 15 constituents were unchanged.

 

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CLO roundup: Greek cloud hangs over Europe; US prints eight deals

Having already paused activity last week, Greece’s debt problems now threaten to curtail new-issue CLO activity for the rest of the summer in Europe after yesterday’s rejection of austerity measures. It also remains to be seen whether the U.S. market will lose its momentum after last week’s bonanza that saw eight deals print stateside.

Global CLO volume Jul 3 2015

 

Year-to-date statistics are as follows:

• Global issuance totals $68.38 billion.
• U.S. issuance totals $59.96 billion from 113 deals, versus $64.01 billion from 119 deals during the same period last year.
• European issuance totals €7.56 billion from 19 deals, versus €6.92 billion from 16 deals during the same period last year.  – Sarah Husband

 

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High yield bond, loan markets in Europe largely resilient to Greek ‘No’ vote

Despite a resounding ‘No’ vote in the Greek referendum, which saw the country’s people vote against further austerity, the reaction in European loan and bond markets has largely been orderly and contained. The vote has however ushered in a further period of political uncertainty and economic volatility in Europe, with issuers having to wait and see how the situation develops before coming to market with new deals.

In the aftermath of the vote, Greek finance minister Yanis Varoufakis resigned. His replacement will be instrumental in the talks that will now ensue as Greece grapples with how to maintain liquidity in its banking system, and the EU ponders how to prevent (or in a worst-case scenario, manage) the country’s exit from the euro. There is much at stake, with concerns that despite stringent capital controls instigated last week, ATMs across the country may soon run out of cash.

The market’s reaction today was more muted than a week ago when the referendum was announced, with the iTraxx crossover widening by 15 points this morning to 342, and the FTSE 100 and Eurostoxx 50 shedding roughly 42 points and 58 points, respectively. “The market doesn’t seem to care. It’s less of an event than last Monday, after Tspiras called for the referendum. Even euro/dollar is not doing much,” said one investor.

The sovereign bond market followed suit, with 10-year yields on government paper from Italy, Spain, and Portugal widening by 11-14 bps. Greek 10-year bonds widened by 257 bps. Meanwhile the 10-year Bund yield tightened by five basis points, to 74.

High-yield corporates slipped 0.5-2 points across the board in early trading, while Greek-related names were more heavily hit.PPC’s 4.75% notes due 2017 were the biggest losers, down nine points, while Hellenic Petroleum’s 8% notes due 2017 fell seven points. OTE bonds, often a proxy for sovereign risk during a crisis, were also hit – the borrower’s 7.875% notes due 2018 fell six points, while its 3.5% notes due 2020 fell five points.

Loan markets have also been hampered by the volatility, and are likely to remain moribund as issuers wait to see how the Greek situation plays out. “We’ll be gazing at our navels for the next few weeks,” said one arranger. “We can’t post on pricing. There is a market, but we don’t know where it is. The market’s not closed, because there are buyers – there just aren’t any sellers. Why would anybody issue in this market?”

There are investors out there with cash, and there are also several deals ready to launch, the largest of which is the LBO financing for glass-bottle business Verallia, which is expected to total roughly €2 billion of loans and bonds. The transaction, led by BNP Paribas, Credit Suisse, Deutsche Bank, Nomura, Société Générale CIB, and UBS, was understood to be ready to launch if the Greeks had voted ‘Yes’ in the referendum, and the arrangers could still look to de-risk via an early bird phase among select lenders, rather than be on risk for the entire financing over what could be a volatile summer.

The lack of visibility may also affect the launch of expected deals from GFKL Financial Services and Motor Fuel Group, which sources say has been shown to investors already.

In bonds, DufrySynlabs, and Center Parcs remain in the pipeline, while pre-marketing took place for a small U.K. company last week, sources said.

In the CLO market, hopes that a ‘Yes’ vote would offer a window of opportunity for those looking to price transactions ahead of the summer lull were dashed by the results of yesterday’s poll, and arrangers and investors are now busy collating investor feedback, and assessing appetite and likely price levels. However, the ‘No’ vote means new-issue activity could now be on hold until September. Carlyle via Citi, and Pramerica via Credit Suisse were among those looking to price imminently, with another handful behind them, sources say.

As reported last week, this situation may or may not be a problem for CLO managers with warehouses open – depending on the make-up of that warehouse and the future direction of the secondary market. Any significant sell off in secondary in the coming weeks raises the potential for warehouses to go underwater, but a warehouse comprising mostly primary assets bought at par or a discount will be better able to withstand secondary weakness than one constructed via secondary market purchases at par and above. Indeed for those starting to ramp new transactions, the current conditions – a mix of better M&A loan supply, a halt in repricings and spread compression, and volatility – may be ideal in terms of generating a strong equity performance. – Staff reports

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Univar preps allocations on cross-border term debt

A Bank of America Merrill Lynch-led arranger group today firmed pricing on Univar’s U.S. dollar B term loan at the tight end of its L+325-350 range, while dropping a proposed MFN sunset provision from the cross-border transaction. All other terms are unchanged, and allocations are expected today, sources said.

The seven-year covenant-lite loan is split between $2.05 billion and €250 million tranches, priced at L/E+325, with a 1% floor, and offered at 99.5. The loans will include six months of 101 soft call protection. As finalized the loans will yield 4.41% to maturity.

BAML, Deutsche Bank, Goldman Sachs, J.P. Morgan, Wells Fargo, HSBC, SunTrust Robinson Humphrey, Morgan Stanley, Barclays, Citi and Credit Suisse are arranging the transaction.

The chemical concern, which is controlled by Clayton Dubilier & Rice and CVC last week priced its initial public offering of 35 million shares of common stock at $22 per share, the high end of a $20-22 range. The issuer also this week sold $400 million of 6.75% senior notes due 2023.

The company plans to use proceeds from the IPO and those from a concurrent private placement in part to redeem the all of its bonds. There is $600 million outstanding under its 2017 subordinated notes and $50 million outstanding under its 2018 subordinated notes, SEC filings show. With the IPO, the current sponsors’ ownership stake would be reduced to about 55.7% of the company’s common stock.

As of March 31, there was about $2.68 billion outstanding under the issuer’s covenant-lite dollar-denominated term loan and $136.5 million under its euro term loan, both of which mature in June 2017. The dollar tranche is priced at L+350, with a 1.5% LIBOR floor, while the euro loan is priced at E+375, with a 1.5% floor. In recent regulatory filings related to the proposed IPO, the company had indicated its plans to refinance its existing loans. – Chris Donnelly/Kerry Kantin

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Hayfin Capital Management hires Moravek for U.K. origination

Private debt fund manager Hayfin Capital Management has hired Paul Moravek as a managing director in its U.K. origination team.

Moravek, who begins work at the firm next week, joins from VentureFounders, a U.K.-based equity crowdfunding platform which he co-founded in 2013.

Previously he worked in leveraged finance at Merrill Lynch for nine years, having joined in 2004 from J.P. Morgan.

Hayfin recently bid farewell to two managing directors: Paul Levy, who joined investment banking boutique GreensLedge, andRinaldo Olivari, who left to launch his own financial technology firm.

Jeff Sockwell, also a managing director and co-head of origination at the firm had earlier left the firm in May to the U.S. He continues to be an advisor to the firm.

The moves follow a recapitalisation at Hayfin whereby the firm sold the portfolio of owned assets to Australian sovereign wealth fund The Future Fund, one of its shareholders. Proceeds from the €705 million sale were used to fund a dividend to investors. In a statement at the time of the deal in May, Hayfin said it would continue to manage the assets on behalf of The Future Fund alongside other third-party funds and separate accounts. Hayfin reaffirmed its commitment to its role as a European direct lending platform and said it would look to expand it across Europe.

The firm’s management team increased their stake in the business following the recap, while the firm’s institutional backers – private equity group Towerbrook Capital Partners, The Public Sector Pension Investment Board, The Ontario Municipal Employees Retirement System (OMERS), and The Future Fund – reduced their shareholdings pro-rata. – Oliver Smiddy

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GE selling Antares to Canada pension fund CPPIB as part of $12B deal

GE will sell Antares Capital to Canada Pension Plan Investment Board (CPPIB) as part of a $12 billion transaction.

The sale includes a $3 billion bank loan portfolio. Antares Capital will operate as an independent business, and retain the name. The sale is expected to close in the third quarter.

Managing partners David Brackett and John Martin, who have led Antares since its formation, will continue to lead the stand-alone business. CPPIB will retain the Antares team, a statement today said.

Stuart Aronson, the CEO of GE Capital Sponsor Finance, will stay at GE Capital.

The sale accounts for $11 billion of ending net investment. GE Capital has announced sales of roughly $55 billion, and plans to complete $100 billion of sales this year.

The Senior Secured Loan Program (SSLP) will continue to operate for a time prior to the closing of the deal, giving “Ares and CPPIB the opportunity to work together on a go-forward basis.” The SSLP is a joint venture between GE Capital and Ares Capital.

“If a mutual agreement is not reached, it is GE Capital’s intention to retain the SSLP in the future so that it can execute an orderly wind down of this program ($7.6 billion GE Capital investment, $6.1 billion of which is attributable to Sponsor Finance).”

A similar strategy holds for the Middle Market Growth Program (MMGP), which is a joint venture between affiliates of GE Capital and affiliates of Lone Star Funds, GE said. That program accounts for $600 million of GE Capital investment.

GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business. GE Antares specializes in middle market lending to private-equity backed transactions.

GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.

In May, Ares Capital CEO Kipp deVeer said Ares plans to continue supporting sponsors and businesses, either directly or through a new program with a new partner. This new partner may be looking to expand their lending to the middle market, or be entering the business for the first time.

He cautioned that there was no guarantee that Ares would reach a deal. In recent weeks, Ares has been working with potential parties, including non-U.S. regulated banks and non-banks such as asset managers, insurance companies, and combinations thereof.

GE Capital is not allowed to unilaterally sell the loans in the SSLP. If no partner is found, the SSLP could be gradually wound down through repayment of the loans. The weighted average life of the SSLP loans was 4.3 years at the end of the first quarter. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more