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



Leveraged loan funds report third consecutive week of inflows

Leveraged loan funds reported inflows of $208 million for the week ended July 22, following inflows of $34 million and $19 million in the previous two weeks, which reversed a five-week outflow streak worth a combined $1.2 billion, according to Lipper.

This week’s result was attributed to a $168 million inflow to mutual funds, along with a $40 million inflow to the ETF segment. In contrast, last week’s $34 million inflow came from a $37 million inflow to ETFs offset by a $3 million outflow from mutual funds.

With today’s net inflow, the trailing four-week average improves to negative $26 million, from negative $122 million last week and negative $208 million two weeks ago.

The year-to-date outflow is now $3.9 billion, with 2% tied to ETFs, versus an inflow of $352 million at this point last year that was roughly 216% tied to ETFs.

In today’s report, the change due to market conditions was negative $98.5 million, which is essentially nil against total assets, which were $93.3 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 7% of the sum. – Joy Ferguson


Leveraged loan fund assets under management hit two-year low

loan fund assets under management

After eking out two months of growth, loan mutual funds’ assets under management declined $2.9 billion in June – the biggest drop since January – to a two-year low of $135.6 billion, from $138.5 billion a month earlier, according to data from Lipper FMI and fund filings.

The reason? institutional investors in June adopted a low-wattage risk-off posture across risk assets, amid growing tensions surrounding the Greek debt situation. (Early data from July suggests that loan fund assets are stabilizing.) – Steve Miller

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RAAM Global Energy extends deadline for bond exchange again

Struggling oil and gas exploration and production company RAAM Global Energy has extended an exchange offer for its 12.5% secured notes due 2015 by an additional week.

The exchange offer, which is for new 12.5% notes due 2019 and RAAM common stock, was due to expire on July 16. The new deadline is July 23.

So far, roughly $226.5 million in principal of the 12.5% secured notes due 2015, or 95.2% of outstanding notes, has been tendered, a statement said. The company has previously extended the deadline several times.

In April, RAAM Global Energy said it would enter into discussions with senior term loan lenders and bondholders after failing to pay a $14.75 million coupon on the bonds due 2015.

Standard & Poor’s cut RAAM Global Energy’s corporate credit rating to D, from CCC-, and the issue-level rating on the company’s senior secured debt to D, from CCC-, after the missed bond interest payment. A month later, the ratings were withdrawn at the company’s request.

RAAM Global Energy sold $150 million of 12.5% secured notes due 2015 in September 2010 through bookrunners Global Hunter Securities and Knight Libertas. Proceeds funded general corporate purposes. The bond issue was reopened by $50 million in July 2011 and by another $50 million in April 2013.

The company also owes debt under an $85 million first-lien term loan due 2016. Wilmington Trust is agent.

RAAM Global Energy Company’s production facilities are in the Gulf of Mexico, offshore Louisiana and onshore Louisiana, Texas, Oklahoma, and California. – Abby Latour

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US Leveraged loan funds see second straight investor cash inflow

leveraged loan fund flows

Loan funds reported inflows of $34 million for the week ended July 15, following an inflow of $19 million last week, which itself reversed a five-week outflow streak worth a combined $1.2 billion, according to Lipper.

However, take note that the small inflow this week was attributed to $3 million outflow from mutual funds filled in by an inflow of $37 million to the ETF segment. In contrast, last week’s net inflow was one third mutual fund and two thirds ETF.

With today’s net inflow, the trailing four-week average is now negative $122 million, versus negative $268 million last week and negative $208 million two weeks ago.

The year-to-date outflow remains at $4.1 billion, with 3% tied to ETFs, versus an inflow of $765 million at this point last year that was roughly 100% tied to ETFs.

In today’s report, the change due to market conditions was positive $215 million, which is essentially nil against total assets, which were $93.2 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 7% of the sum. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.


CORE Entertainment downgraded again; grace period on loan lapses

Moody’s downgraded ratings on CORE Entertainment, citing deteriorating earnings for its U.S. Idol franchise that Fox will not renew after the 2016 season, and the expiration of a 30-day grace period to make a missed loan interest payment.

“The negative outlook reflects the very high leverage, the decline of its Idol franchise, the missed interest payment on the 2nd-lien term loan, and negative free cash flow that elevates restructuring risk,” Moody’s said in a July 15 research note.

Leverage for the company, which owns and develops entertainment content, exceeded 10x as of the first quarter of 2015.

Standard & Poor’s cut CORE Entertainment ratings last month after the company missed the interest payment on a $160 million second-lien loan due 2018.

Moody’s cut CORE Entertainment’s corporate family rating yesterday to Ca, from Caa3, and a $200 million senior secured first-lien term loan due 2017 to Caa2, from Caa1. Moody’s affirmed a Ca rating on the $160 million second-lien term loan due 2018.

“Following the 2016 season of Idol, the company will be reliant on its So You Think You Can Dance (Dance), International Idol format revenue, and its Sharp Entertainment division for earnings which will increase the unsustainability of its capital structure with debt that starts to mature in June 2017,” Moody’s said.

“The cash balance has not been used to acquire EBITDA producing assets to offset the EBITDA lost following the Elvis Presley Enterprises sale and development of new programming content has been slower than expected.”

In June, Standard & Poor’s cut the rating on the 13.5% second-lien term loan due 2018 to C, from CCC-, lowered the company’s corporate rating to CCC-, from CCC+, and the rating on a $200 million senior first-lien term loan due 2017 to CCC-, from CCC+.

Investors in the company are Apollo Global Management and Crestview Partners.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The loans stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012. – Abby Latour

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



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, LCD’s free website promoting the leveraged loan asset class. 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



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.



CVS Health launches $15B M&A bond as deal sizes creep higher

CVS Health (NYSE: CVS) today launched a $15 billion offering of SEC-registered senior notes backing its planned acquisitions of Omnicare and the pharmacy and clinic businesses of Target, sources said.

The offering is just the eighth since the start of 2012 to total $15 billion or more, including deals this year for Actavis Funding ($21 billion on March 3), AT&T ($17.5 billion on April 23), AbbVie ($16.7 billion on May 5), and Charter Communications ($15.5 billion last week), all of which also backed blockbuster M&A plays, LCD data show.

For reference, last year produced just one offering of $15 billion or more, a $17 billion late-year deal for Medtronicon Dec. 1 for its acquisition of Covidien.

Spreads for today’s deal were set firm to guidance ranges established five basis points on either side of midpoints, after an initially proposed three-year floating-rate tranche was dropped from the structure. The deal was set across $2.25 billion of 2018 notes at T+85 (guidance T+90 area from initial whispers in the T+110 area), $2.75 billion of 2020 notes at T+110 (guidance T+115 area from initial whispers in the T+130 area), $1.5 billion of 2022 notes at T+135 (guidance T+140 from initial whispers in the T+155 area), $3 billion of 2025 notes at T+155 (guidance T+160 from initial whispers in the T+170 area), $2 billion of 2035 bonds at T+175 (guidance T+180 area from initial whispers in the T+205 area), and $3.5 billion of 2045 bonds at T+190 (guidance T+195 area from initial whispers in the T+215 area), sources said. Press reports earlier today suggested an order book cover of roughly three times the proposed offering amount.

CVS bonds have traded wider since the acquisition announcements this spring, and continued wider today in the context of high new-issue concessions built into the talk levels. CVS 3.375% notes due August 2024, which printed last August at T+105, traded more than 20 bps wider in May at levels roughly 15 bps above issuance. The issue changed hands on Friday at T+126 as participants braced for today’s offering and in the T+140 area today, trade data show. The company’s 5.3% 30-year notes due December 2043 traded on Friday at date-adjusted levels in the low T+170s and today in the T+185-190 range, or up from pricing at T+145 in December 2013.

Bookrunners for today’s offering are Barclays, BNY Mellon, J.P. Morgan, and Wells Fargo.

All but the proposed 2025 issue are subject to a special mandatory redemption at 101, in the event the Omnicare acquisition is not completed by Aug. 20, 2016. The notes, which are guided to a BBB+/Baa1 profile (stable on both sides), are also subject to ratings-sensitive, change-of-control puts at 101.

The fixed-rate notes are subject to make-whole call provisions. Par calls apply for the 2020 notes from one month prior to maturity, for 2022 notes from two months prior to maturity, for 2025 notes from three months prior to maturity, and for 2035 and 2045 bonds from six months prior to maturity.

CVS in May secured a $13 billion unsecured bridge loan from Barclays in connection with its planned $12.7 billion acquisition of BB/Ba3 Omnicare (NYSE: OCR), including the assumption of roughly $2.3 billion of Omnicare debt. CVS stated at the time that it expected to print “permanent financing” in the form of senior notes and/or term-loan debt prior to the closing of the transaction, which is expected near the end of 2015.

CVS subsequently announced that it would acquire the pharmacy and clinic businesses of Target (NYSE: TGT) for roughly $1.9 billion.

S&P and Moody’s affirmed ratings after the M&A plays. “In our view, the [Target] transaction will allow CVS to expand its pharmacy network and strengthen its retail presence in new markets, while driving incremental sales and prescription volumes,” S&P stated on June 15. In May, it said that the Omnicare deal would not lead to a material change in overall financial risk, “given CVS’ demonstrated ability to reduce debt leverage with excess cash flow.”

However, Moody’s noted on the same day that the rapid-fire acquisition activity left CVS “weakly positioned” in the Baa1 category, though it in May characterized the larger Omnicare play a net credit positive. – John Atkins


Middle-market company revenue up in 1st two months of 2Q, index says

Revenue of privately held middle-market companies rose 9.26% in the first two months of the second quarter of 2015, outpacing revenue growth of 7.24% in the first quarter, according to an index created by Golub Capital and credit market expert Ed Altman.

EBITDA increased by 6.93% year-over-year during the first two months of the second quarter of 2015, compared to 6.42% in the first quarter. The Golub Capital Altman Index is based on the sales and earnings data of roughly 150 private U.S. companies in Golub Capital’s loan portfolio.

The index was featured in the inaugural edition of the quarterly Golub Capital Middle Market Report, which includes an analysis of the index. – Abby Latour

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