Issuers got right down to business as the second quarter got underway, with no fewer than five CLOs pricing in the U.S., along with one in Europe. In the U.S., week ending April 4th’s $2.75 billion supply total was the highest of the year, just topping the $2.7 billion issued in the week ended March 14, according to LCD. Week ending April 4th’s surge comes after March saw $11.15 billion of issuance, the highest monthly tally since May 2007, when $10.82 billion priced. Global supply for the week stood at $3.26 billion, including $514 million from European issuers, according to LCD.
Global supply for the week stood at $3.26 billion, including $514 million from European issuers, according to LCD.
Included among the offerings stateside last week were three broadly syndicated CLOs from established managers and two middle-market CLOs, as well as two refinancings (LCD does not count refinancings in its volume figures).
New CLO supply in the U.S. in the year to date stands at $25.38 billion, versus $26.61 billion during the same period last year, according to LCD.
In addition, CIFC Asset Management priced a $724.49 million CLO (CIFC Funding 2014-II) via RBS last Friday, which LCD has not yet included in its volume figures.
GSO/Blackstone was busy on both sides of the Atlantic, pricing Pinnacle Park in the U.S. and Holland Park in Europe. The former secured a tight print of L+150 on its AAA tranche, while the latter was the largest CLO to price in Europe this year.
The average U.S. AAA spread remains at 155 bps, so Pinnacle Park’s print was eye-catching. Expectations are that liability spreads will contract a little over the coming quarter, with a recent investor survey by J.P. Morgan indicating AAA spread expectations of L+135-155 and Wells Fargo’s David Preston predicting a tightening to L+140-145. Still, ongoing heavy supply will prevent too much tightening.
Any narrowing of liability spreads, along with softer secondary loan prices as retail investors’ enthusiasm for loans eases, would create a less challenging backdrop for CLO managers trying to ramp deals. But it would likely ensure that issuance remains heavy over the coming months. The pipeline certainly remains healthy, sources say, with more first-time managers looking to price deals over the next quarter.
Managers looking to price deals in the near term include:
- GC Investment Management (Golub Capital Partners CLO 19B), via Citi (this week)
- Bradford & Marzec (B&M CLO 2014-10, via Credit Suisse (this week)
- Halcyon Loan Advisors (Halcyon Loan Advisors Funding 2014-2), via Citi (next week)
- Telos Asset Management (Telos 2014-5 CLO) via BNP Paribas
Also in the pipeline are Steele Creek (via BNP), Aegon USA Investment Management (Jefferies), Saratoga Investment Corp. (via Cohen & Co).
Refinancings have been a big theme this year, and last week saw another two managers reduce their cost of funding, bringing the total number of CLO refis this year to six, according to LCD.
BNP Paribas priced a refinancing of all debt tranches of LCM Asset Management’s 2012-vintage LCM X transaction, reducing the coupon on the $259 million triple-A tranche to L+126, from L+148. And Citi priced a refinancing of all of the debt tranches of Invesco’s 2012-vintage Avalon IV CLO. The transaction reduces the coupon on the $231 million triple-A tranche to L+117, from L+150. The refinancing priced at par.
Across the pond
European issuance continued last week with GSO Blackstone’s Holland Park, via BNP Paribas. This transaction is GSO’s fourth European CLO 2.0, and it follows the €615.7 million Richmond Park, which priced via Citi in December.
Holland Park marks BNP’s return to the European CLO market, and it follows Goldman Sachs’ return last week, when it priced CVC Cordatus Loan Fund III for CVC Credit Partners. The addition of two more arrangers should be encouraging to those managers concerned about the relatively thin arranger base, which some blame for the slow feed of new deals to market.
But while the arranger base might be thin, investors in the European CLO market are also keen to see a more diverse manager pool. As a result, there was great interest in CVC Cordatus Loan Fund III CLO, which was structured via the originator method to comply with European risk-retention regulations. The originator structure is not new to the U.S. market, and it has been used by managers such as Canaras Capital Management, KKR, and Black Diamond, as well as by BDCs. But it is the first time a European manager has ventured from the more accepted sponsor route, and there are hopes that it could potentially open up the market to a broader number of European managers.
Notably, Saranac Advisory (Canaras Capital Management) just closed Saranac CLO II via Jefferies, which is another U.S. CLO to use the originator structure.
Including GSO’s deal, issuance in the year to date in Europe stands at €3.02 billion from seven deals, according to LCD.
Looking ahead, however, it could be a few weeks before the next pricing, sources say. Alcentra (via J.P. Morgan) could well be the next manager to print in Europe, making it the first to price two deals this year, sources say. Others targeting second-quarter deals are CELF Advisors (via Citi), 3i Debt Management (via CS), Avoca (via MS), and Oaktree (via Barclays).
– Sarah Husband