NewStar readies $496.07 million middle-market CLO; covenants to help Europe CLOs

By Cristal Cody

Tupelo, Miss., March 10 – NewStar Financial, Inc. is in the CLO deal pipeline with a $496.07 million middle-market transaction via Wells Fargo Securities, LLC, according to a source on Tuesday.

The NewStar Commercial Loan Funding 2015-1 LLC offering includes $253.5 million of class A-1 floating-rate notes (//AAA); $35 million of class A-2 floating-rate notes (//AAA); $50 million of class B floating-rate notes; $38.5 million of class C floating-rate notes; $33.25 million of class D floating-rate notes and $85.82 million of membership interests.

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

The notes are due in 2027.

The offering is backed primarily by senior secured loans, cash and eligible investments.

NewStar Financial intends to use the proceeds from the deal to purchase a $500 million portfolio of middle-market loans.

The Boston-based middle-market commercial lender brought three CLO deals in 2014.

Covenants limit exposure

The addition of covenants included in new European CLOs on the largest 10 obligors ensures portfolio diversity and should help to mitigate performance volatility, including during stress periods, Fitch Ratings said in a news release on Tuesday.

“The additional covenant appears to have been included in structures as market best practice and typically limits CLO exposure to the largest 10 obligors at 20%,” Fitch said. “This compares with 26.5% for typical European CLO.”

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