CLO primary expected to pick up in February; Carlyle European CLO details emerge

By Rebecca Melvin

New York, Feb. 4 – CLO primary deal flow is expected to improve this month after 2015 got started on a quiet note, a New York-based market source said.

“It picked up at the end of January,” and that trend should remain in place, the New York-based CLO market source said Wednesday.

For January, global CLO issuance stood 37% below the same month last year, or at $2.78 billion in six deals, compared to $4.43 billion in nine deals for January 2014, according to data compiled by Prospect News.

Further details emerged on Wednesday on the €500 million European deal that Washington, D.C.-based Carlyle Group LP priced this week.

The Euro deal, which will be managed by London-based CELF Advisors LLP, part of the Carlyle Group, represents the year’s first European CLO transaction.

The Carlyle CLO is backed primarily by European senior secured loans and senior secured bonds.

Meanwhile, CLO market players remain concerned about oil and gas exposure, although for many investors, overall market volatility may be beneficial in the long run, Wells Fargo Securities LLC senior analyst Dave Preston and associate analyst Jason McNeilis wrote in a recent note.

High levels of uncertainty and volatility across asset classes may have been behind the sluggish primary market, which is also likely driven by a drop in CLO equity demand.

Preston and NcNeilis wrote in a recent note that while the absolute difference between asset spreads and CLO funding costs appear attractive, CLO equity investors are on pause due to lower net asset value and high CLO funding costs.

Oil prices dropped back sharply on Wednesday after a four-day rally, with West Texas intermediate crude oil for March delivery falling $4.45, or 8.4%, to $48.60 per barrel, while Brent crude oil fell 6.5% to $54.16 per barrel.

Carlyle prices €500 million

At the top of the capital structure, the Carlyle Global Market Strategies Euro CLO 2015-1, Ltd. sold €273.5 million of class A-1A senior secured floating-rate notes (/AAA/) at Euribor plus 125 basis points.

It also priced €5 million of class A-1B senior secured fixed-rate notes (/AAA/) at 1.64%; €53.9 million of class A-2A senior secured deferrable floating-rate notes (/AA/) at Euribor plus 210 bps; €12 million of class A-2B senior secured fixed-rate notes (/AA/) at 2.54%; €28.6 million of class B senior secured deferrable floating-rate notes (/A/) at Euribor plus 300 bps; €27.6 million of class C senior secured deferrable floating-rate notes (/BBB/) at Euribor plus 390 bps; €28.6 million of class D senior secured deferrable floating-rate notes (/BB/) at Euribor plus 535 bps; €16.8 million of class E senior secured deferrable floating-rate notes (/B-/) at Euribor plus 745 bps and €54 million of subordinated notes.

Barclays Bank plc arranged the transaction.

CELF Advisors LLP, a member of the Carlyle Group, will manage the CLO, which is backed primarily by broadly syndicated senior secured loans granted to speculative-grade European corporates.

The notes are due in April 2029.

The non-call period is set to end in 2017, and the reinvestment period is scheduled to end in 2019.

© 2015 Prospect News.
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