Cairn CLO to price notes, comply with Europe risk retention; market supports spread cuts

By Cristal Cody

Tupelo, Miss., Sept. 3 – A vintage 2013 European CLO is expected to be to be restructured to comply with European risk retention rules.

Cairn Capital Ltd. plans to issue new notes in the Cairn CLO III BV vehicle and appoint a new CLO manager, according to a notice to noteholders.

The CLO plans to issue additional class D notes, fungible with the existing class D notes; issue one or more new classes of mezzanine notes that will be subordinated to the class D notes and senior to the class M subordinated notes; price a new class of subordinated notes that will be subordinated to the new mezzanine notes and redeem the existing class M subordinated notes with proceeds from the issuance of the new class D notes, mezzanine notes and subordinated notes.

Cairn originally sold €300.5 million of senior secured floating-rate notes and subordinated notes due April 20, 2025 in the transaction on Feb. 20, 2013 via Credit Suisse Securities (Europe) Ltd.

The CLO plans to extend the non-call period, reinvestment period and the maturity date.

The original CLO manager, Cairn Capital Ltd., will be replaced with Cairn Loan Investments LLP, which is expected to purchase and hold a sufficient principal amount of the new subordinated notes to comply with European risk retention regulations.

London-based Cairn Loan Investments previously was in the primary market on May 21 with the €308.55 million Cairn CLO V BV deal.

Several early European CLO 2.0 deals have exited or are about to exit their non-call periods, which provides opportunities for equity investors to redeem, refinance or reprice debt tranches, according to BofA Merrill Lynch.

European CLO pricing seems to support a 15 basis points to 20 bps “spread reduction for two years shorter duration,” according to a BofA Merrill Lynch report.

In August, Carlyle Group LP received consent from the holder of its tranche of €210 million class A senior secured floating-rate notes due 2025 in the Carlyle Global Market Strategies Euro CLO 2013-1 BV transaction to reduce the interest rate.

The transaction was the first Volckerization of a European CLO and the first example of a bond from a European 2.0 CLO to have its coupon spread lowered, according to BofA Merrill Lynch.

The notes in the Carlyle CLO were reduced by 15 bps to an interest rate margin of 115 bps starting at the Aug. 17 payment date.

The rights of class A noteholders to vote on resolutions to remove the collateral manager and appoint a successor collateral manager also were removed to comply with the U.S. Volcker rules, which prohibit ownership interests by banks in certain CLOs.

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