The CLO market remains active, as six deals priced last week, totaling about $3.06 billion. Overall, 18 CLOs priced in February totaling $8.94 billion, according to LCD. Issuance in the year to date stands at $11.49 billion across 23 deals, versus $15.52 billion in the same period last year.
Of interest, Carlyle priced two deals last week, one in the U.S. and one in Europe, making it the second manager, along with 3i, to print CLOs on both sides of the Atlantic this year (see below). GC Investment Management’s CLO was based off mid-market loans, while Napier Park’s upsized $492.3 million CLO included a $50 million A-1 loan tranche, which sources suggest was structured as a loan to allow a bank holder to put it in its hold-to-maturity book, as opposed to accounting for it on a mark-to-market basis.
Meanwhile, Sankaty joined the refinancing wave, becoming the third manager to lower its cost of funding via a repricing. All three have been arranged by RBS.
There was much chatter that the $571.4 million OWIC that hit the market last Wednesday – of which about 67% was said to have traded – was an account sourcing assets for a new CLO. While an efficient way to build a collateral pool, the manager could end up paying up for the assets, which may impact the equity returns of a CLO, sources suggest.
Two other CLOs priced last week – for Zais Group and Tall Tree Investment – and with these deals in the mix, the global CLO market had its busiest week since Thanksgiving 2013, according to J.P. Morgan in its U.S. Fixed Income Strategy research note on Feb. 28.
Zais priced a $310.85 million CLO via J.P. Morgan, while Tall Tree Investment priced a $408.5 million CLO via Guggenheim and Jefferies.
The pipeline remains busy, and Citi in particular has been active of late. Price guidance emerged for Ares XXIX CLO (via Citi), while Onex is expected to price its first CLO of the year imminently, also through the bank. The arranger also has deals in the works for TPG and Trimaran Advisors too, sources say.
Western Asset Management has yet to price its CLO via Deutsche Bank, while Och-Ziff guided its CLO via Bank of America Merrill Lynch in the L+155 area last week.
Other managers working on deals include GoldenTree (via JPM), KVK (via GS), Fortress (via Natixis), and Nebula Capital (via Nomura).
The new-issue market appears to have settled into its post-Volcker swing, but the growing anticipation of a favorable response regarding both the grandfathering of legacy deals, as well as a clarification over ownership interest for new CLOs, is also supporting primary issuance.
Last week saw yet another Congressional hearing, which brought the draft legislation prepared and circulated by Rep. Andy Barr (R-Ky.) to the market’s attention. The bill’s passage would resolve a significant portion of the Volcker problem for CLOs, in that it proposes to grandfather in any CLO issued prior to Dec. 31 2013. It also addresses the ownership interest issue for new CLOs by clarifying that the ability to participate in the removal or replacement of a CLO manager for cause does not constitute an ownership interest.
Perhaps even more edifying was the degree of bipartisan support for the CLO market, both around Volcker and risk retention with regard to the Qualified CLO concept. As noted by the LSTA in its weekly market review: “There was a spirited discussion around the Volcker Rule, with the Republican lawmakers strongly in favor of the Barr bill, and the Democratic lawmakers in favor of a narrower fix for CLOs. The key takeaway here is that both Republican and Democratic lawmakers are in favor of some form of fix for Volcker for CLOs.”
Across the pond
The European CLO market revved up last week, with two deals pricing and a very well-attended conference taking place in London. As a result there is a positive vibe around the CLO primary market, which – with two more deals expected to price over the next week – looks better positioned to achieve the €10 billion of new issuance forecasted for this year.
3i Debt Management and CELF Advisors both upsized their CLOs to €425 million and €375 million respectively.
These latest transactions join Alcentra’s Jubilee CLO 2014-XI, which priced in January, and take YTD issuance to €1.21 billion, according to LCD.
That tally could rise to as much as €2 billion over the next week, with two more CLOs expected to price in the coming week or so – ICG’s St Paul’s IV via Deutsche Bank, and Babson Capital Europe’s Babson Euro 2014-1 via Bank of America Merrill Lynch.
A look further down the pipeline reveals at least another 15 managers said to be looking to tap the market this year. The 15 are (in alphabetical order) Alcentra, Apollo, Ares, Avoca, AXA, Cairn, Chenavari, CVC, GLG, GSO Blackstone, Pemba, Pinebridge, Pramerica, Rothschild, Sankaty. Note that numerous managers are said to looking for multiple prints in 2014.
Although the pace looks to be picking up, the relative scarcity of European 2.0s is helping European managers print tighter AAA coupons than their U.S. counterparts, and both last week’s deals priced at E+140, (no discount margins were provided in either case), versus coupons of L+150 seen on recent U.S. CLO prints. – Sarah Husband