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NXT Capital prices $357M CLO via Wells Fargo; AAAs at 175 bps; 19th deal in April

Wells Fargo today priced a $357.4 million CLO for NXT Capital, according to market sources. BMO was a co-lead for the transaction.

The CLO is structured as follows:

The transaction has a two-year non-call period, and a four-year reinvestment period.

Including NXT’s CLO issuance totals $32.77 billion across 64 deals, according to LCD. In April, 19 deals have priced totaling $10.13 billion. – Sarah Husband

 

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AFA Foods (“pink slime” producer) exits Chapter 11; estate seeks $84M in clawbacks

The Chapter 11 liquidation plan for AFA Foods took effect on Wednesday, court records show, following bankruptcy court confirmation of the company’s plan on March 7.

U.S. Bankruptcy Judge Mary Walrath approved a global settlement resolving all key disputes remaining in the case last July. Lawyers for the bankrupt estate are now attempting to claw back about $84 million for creditors. AFA’s estate recently filed 125 suits seeking to recover allegedly preferential payments made to vendors and other parties in the weeks leading up to the company’s April 2012 bankruptcy filing, according to Law360.

Although the gross amount sought by the suits is about $84 million, the net value to creditors will likely be in the $15 million range due to the offset rights of some of the targets, Law360 reported.

AFA repaid its senior lenders last year after selling its meat-processing facilities, which brought in a total of $69.7 million. The company was left with about $14 million in cash on hand after repaying its $56 million debtor-in-possession credit facility.

AFA filed for Chapter 11 in April 2012, in the wake of negative media reports on one of its primary products, a lean, finely-textured processed beef often added to ground beef and known pejoratively as “pink slime.” The ground-beef processing company, based in King of Prussia, Pa., blamed its filing on “recent changes in the market for its ground-beef products and the impact of media coverage related to boneless lean beef trimmings.”

AFA became the subject of media scrutiny as early as 2009, when its facility in Ashville, N.Y., recalled more than 500,000 pounds of ground beef after it was linked to an outbreak of E. coli that killed two people and sickened about 500 others, according to The New York Times. The beef trimmings commonly used to make ground beef are more susceptible to contamination because E. coli thrives in cattle feces that can get smeared on the surfaces of whole cuts of meat, the newspaper reported.

The company faced another blow in March of 2012 when a series of reports by ABC News criticized boneless lean beef trimmings, also referred to as “pink slime,” which ABC said is added to 70% of ground beef sold in U.S. supermarkets. “Once only used in dog food and cooking oil, the trimmings are now sprayed with ammonia so they are safe to eat and added to most ground beef as a cheaper filler,” ABC News said. Still, the product meets federal food-safety standards and has been used for years, according to the Associated Press.

In the wake of the report, large grocery-store chains like Kroger pulled the product from their shelves.

Jones Day, Imperial Capital, and FTI Consulting advised AFA in its restructuring. – John Bringardner

 

 

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Avago $4.6B loan backing LSI acquisition enters secondary north of issue price

avago-technologies_200x200Accounts this afternoon received allocations of the covenant-lite $4.6 billion B term loan for Avago Technologies, which broke for trading at 100/100.5, from issuance at 99.5, according to sources. The seven-year loan is priced at L+300, with a 0.75% LIBOR floor. Deutsche Bank, Barclays, Bank of America Merrill Lynch, and Citigroup arranged the loan, which cleared tight to original talk. The publicly traded semiconductor manufacturer will use proceeds to support its $6.6 billion acquisition of LSI Corp. The senior secured financing also includes a $500 million revolver, while Avago is also planning to fund the deal with a $1 billion investment from Silver Lake Partners, which would be in the form of a seven-year 2% convertible note, with a conversion price of $48.04 per share or preferred stock. The company will also use $1 billion of cash from the combined balance sheet to fund the transaction. Terms:

Borrower Avago Technologies
Issue $4.6 billion B term loan
UoP Fund acquisition of LSI
Spread L+300
LIBOR floor 0.75%
Price 99.5
Tenor seven years
YTM (once funded) 3.89%
Call protection 12 months 101 soft call
Corporate ratings BB+/Ba2/BB+
Facility ratings BBB-/Ba1/BBB-
S&P recovery rating 2
Financial covenants none
Arrangers DB, Barc, BAML, Citi
Admin agent DB
Price talk L+325/0.75%/99
Notes Ticking fee of 150 bps kicks in on June 1, stepping to 300 bps July 1; includes a 24-month MFN sunset provision
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Men’s Wearhouse $1.1B loan backing Jos A Bank buy rises on entering secondary

menswearhouseThe $1.1 billion covenant-lite term loan for Men’s Wearhouse ticked to 99.625/100.125 after breaking secondary late this afternoon at 99.5/100, from issuance at 99, according to sources. The seven-year loan is priced at L+350, with a 1% LIBOR floor. J.P. Morgan and Bank of America Merrill Lynch arranged the deal, which cleared at the tight end of talk. Proceeds back the publicly traded retailer’s planned $1.8 billion acquisition of Jos. A. Bank. Since the deal isn’t expected to close until the third quarter, lenders will be paid a ticking fee of half of the drawn spread beginning in June; the fee steps up to the full drawn spread in July. The issuer is also putting in place a $500 million, five-year asset-based revolver. The financing for the merger is also expected to include a $600 million issue of unsecured notes, which have been bridged, SEC filings show. BAML is expected to be left lead on the bond deal. Terms:

Borrower Men’s Wearhouse
Issue $1.1 billion delayed-draw TLB
UoP Finance acquisition of Jos. A. Bank
Spread L+350
LIBOR floor 1.00%
Price 99
Tenor seven years
YTM 4.76%
Call protection 12 months 101 soft call
Corporate ratings B+/Ba3
Facility ratings B+/Ba2
S&P recovery rating 3
Financial covenants none
Arrangers JPM, BAML
Admin agent JPM
Price talk L+350-375/1%/99
Notes Ticking fee of 175 bps kick
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CLO Pipeline: Supply Continues Apace Despite Volcker Disappointment

The primary CLO market stayed busy last week, with LCD tracking seven new CLOs pricing in the U.S., for a total of roughly $3.56 billion, a touch inside last week’s $3.57 billion, which was the largest weekly new-issue tally of the year. Things were quieter in Europe, with Alcentra expected to be the next manager to print a European CLO several weeks down the line (see below). Global issuance for the week stood at $3.56 billion, according to LCD.

Part of this past week’s supply likely results from arrangers and managers wanting to clear the near-term decks ahead of the pending Easter break, as well as the IMN’s Third Annual Investors’ Conference on CLOs and Leveraged Loans, taking place in New York on April 22-23. As a result, new CLO pricing activity could take a breather over the next couple of weeks.

Still, with this past week’s impressive tally, YTD issuance through April 11 has now overtaken last year’s supply over the same period, at $29.77 billion versus $26.92 billion, according to LCD. It’s the first time in 2014 that issuance has run ahead of last year, following a quieter-than-usual January.

Again supply came from a mix of established platforms, as well as another brand new manager – Bradford & Marzec. Of note, Prudential’s jumbo $811.75 million CLO – the second largest cash-flow CLO transaction of the year behind CIFC’s $829 million CIFC Funding 2014-II – priced its AAAs inside 150 bps, at 148 bps (DM).

Halcyon Loan Advisors Funding 2014-2 is expected to price today via Citi, after all tranches except the BBs were subject by Friday. The same arranger is also looking to price a refinancing of Octagon Investment Partners XII for Octagon Credit Investors this week.

Meanwhile, Deutsche Bank is working on a $512.58 million CLO for Benefit Street Partners, while Steele Creek (via BNP), Aegon USA Investment Management (Jefferies), and Saratoga Investment Corp. (via Cohen & Co) are among those in the pipeline.

Across the pond
Europe’s next transaction may not appear until after the Easter break, with Alcentra likely to be the next out of the door in the next couple of weeks. Oaktree is rumoured to be three-to-four weeks away with its debut European CLO 2.0 (via Barclays), and behind that are Pramerica (via Barclays), 3i (via CS), Carlyle (via Citi), and Avoca (via Morgan Stanley).

YTD European CLO issuance stands at €3.02 billion, versus €600.5 million in the year-ago period, according to LCD.

Alcentra is working with J.P. Morgan on its second CLO 2.0 of the year, having priced an upsized €413.5 million CLO – Jubilee CLO 2014-XI – in January.

Both CLOs are structured via Rule 3a-7, which allows the Bank of New York-owned manager to retain bonds in the collateral pool while still exempting the vehicle from the final draft of the Volcker Rule.

Volcker moved back into focus this week after the Fed’s decision to grant banking entities two one-year extensions to the conformance period under the Volcker Rule, to July 21, 2017. The move minimizes the impact of the rule for 1.0 CLOs, as the vast majority of the current $135 billion CLO 1.0 universe is expected to have amortized or been repaid by then. However banks holding CLO 2.0 deals will still need to comply with the rule, which doesn’t permit them to own positions in CLOs that hold bonds.

In response, the LSTA said the two-year extension “does not solve the problem”. Market participants had been hoping for a more permanent fix, akin to that proposed by the legislation drafted by Rep. Barr, which would grandfather all CLO debt issued before Jan. 31, 2014. There’s speculation among some market participants that regulators won’t take any other actions regarding the Volcker Rule. As for the legislative route, sources say it would be difficult to get bipartisan support for the Barr Bill beyond the committee level, as Democrats have little or no desire to circumvent the regulators.

If the vast majority of the current $135 billion CLO 1.0 universe is expected to have amortized or been repaid by July 2017, the bulk of CLO 2.0s issued after 2009 (roughly $140 billion, according to Wells Fargo’s David Preston) could still be outstanding after July 2017.

Included among the possible solutions for this batch of CLOs with regards to Volcker compliance/exemption are refinancing, amendments to exclude bonds, bond removal from portfolios, inclusion of existing manager removal clauses (“for cause” removals and “key manager” clauses) as events of default, and as a last fix, waiving manager removal rights.

For European managers structuring deals as loan-only is a non-starter for most given the reliance of European CLOs on the bond market to boost collateral pools, so any that do need to structure Volcker-compliant deals will have to utilise 3a-7, or eliminate the ‘removal for cause’ clause for the controlling class, which would exempt the CLOs from Volcker.

But Europe generally has been more relaxed about structuring Volcker compliant/exempt deals, as aside from JPM CIO, U.S. banks do not tend to invest in European CLOs, and European investors appear less focused on liquidity, sources say. – Sarah Husband

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US CLO Market Sees Busiest Week Of Year

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