OHA VI refinances; Anchorage Capital preps CLO; possible rate hike worries equity holders

By Cristal Cody

Tupelo, Miss., Aug. 7 – The number of CLOs refinanced year to date rose to 25 following Oak Hill Advisors LP’s refinancing of a vintage deal, according to market sources.

Oak Hill Advisors refinanced $572 million of notes in the OHA Credit Partners VI Ltd. transaction.

Most refinancing activity has taken place between six and 12 months after the end of the non-call period, according to a BofA Merrill Lynch market note.

In many of the deals, “the AAA spread appears to have been refinanced to around 15-30 [basis points] lower than where we estimate new issue spread levels were at the time of refinancing,” the note said.

Looking ahead to the new deal calendar, Anchorage Capital Group, LLC plans to price a $517.5 million CLO.

CIFC Corp. also announced plans on Friday to bring its first risk retention-compliant CLO deal before the end of the year.

More than $76 billion of CLOs have priced year to date, according to data compiled by Prospect News.

In the secondary market on Friday, 3.0 U.S. CLO AAA spreads were unchanged on average at Libor plus 148 bps, according to a Wells Fargo Securities, LLC note from Dave Preston, senior analyst, and Mackenzie Miller, associate analyst. BBB-rated notes were 20 bps tighter from a month ago at the Libor plus 420 bps area.

“CLO spreads widened during June but have remained relatively flat over the past few weeks,” the analysts said. “U.S. 3.0 spreads have tightened since the start of the year, with A and BB spreads tightening the most at 40 bps and 35 bps, respectively.”

CLO equity concerns

In other market activity, the possibility of a fall rate hike by the Federal Reserve has caused some concerns for CLO equity investors, according to a Barclays Bank plc market note on Friday.

“While CLO creation has exceeded most expectations so far in 2015, investors’ appetite for equity has been the constraining factor,” Barclays analysts said in the note. “CLO equity concerns are somewhat tied to greater credit spread volatility, but are more acutely centered on rising rates and the loss of the benefit of Libor floors in CLO collateral.”

THL Credit, Inc. said in its second-quarter earnings release on Thursday that it plans to exit from its CLO equity investments.

Barclays notes that as the expectation of a “rate hike nears, the gradual erosion of the Libor floor benefit has become a significant concern for equity investors. The floor can amount to about 40% of an equity investor’s expected yield, assuming unchanged loan spreads, so it is unsurprising that the issue has come to the forefront of investors’ concerns.”

Barclays forecasts that Libor will increase to as much as 75 bps by the end of the year from the currently 30 bps area if the Fed raises interest rates.

Oak Hill refinances

Oak Hill Advisors refinanced $572 million of notes due May 15, 2023 in the OHA Credit Partners VI deal originally priced in 2012, according to a market source.

The CLO sold $399 million of class A-R senior secured floating-rate notes at Libor plus 128 bps at the top of the capital stack. The original class A notes priced at Libor plus 132 bps.

Morgan Stanley & Co. LLC was the refinancing agent.

Oak Hill Advisors is the CLO manager.

The deal is backed primarily by broadly syndicated first-lien senior secured corporate loans.

Proceeds from the refinancing will be used to redeem the original notes.

Oak Hill Advisors has priced one new U.S. CLO year to date.

The New York City-based investment firm brought three CLO deals to market in 2014.

Anchorage Capital on calendar

Coming up, Anchorage Capital Group plans to price a $517.5 million CLO, according to a market source.

The Anchorage Capital CLO 7, Ltd./Anchorage Capital CLO 7, LLC vehicle is expected to include $2 million of class X senior secured floating-rate notes (Aaa/AAA); $266.25 million of class A senior secured floating-rate notes (Aaa/AAA); $25 million of class A loans (Aaa/AAA); $42.5 million of class B-1 senior secured floating-rate notes (AA); $20 million of class B-2 senior secured fixed-rate notes (AA); $46.25 million of class C mezzanine secured deferrable floating-rate notes (A); $32.5 million of class D mezzanine secured deferrable floating-rate notes (BBB-); $22.5 million of class E junior secured deferrable floating-rate notes (BB-); $12.5 million of class F junior secured deferrable floating-rate notes (non-rated) and $48 million of subordinated notes.

Morgan Stanley & Co. LLC is the placement agent.

Anchorage Capital Group will manage the CLO.

The class X notes are due Oct. 15, 2018. All other debt is due Oct. 15, 2027.

The transaction is backed primarily by broadly syndicated senior secured loans.

Anchorage Capital Group has priced one CLO deal and one CDO offering year to date.

The New York City-based global asset manager brought three CLO transactions in 2014.

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