Supply light; NewStar sells compliant middle-market CLO; BofA Merrill Lynch ups forecast

By Cristal Cody

Tupelo, Miss., Sept. 14 – Global CLO issuance remains light, but that should change once the calendar moves past the Federal Reserve’s rate decision on Thursday, according to market sources.

The previous week saw “zero new prints for the first time since the first week of 2015,” J.P. Morgan Securities LLC analysts said in a note. “Coming off a slow July and August, with a monthly average of $6.7 [billion], we expect the U.S. CLO calendar to remain subdued through September. On the flip side, based on a visible near-term pipeline European CLO issuance could begin to pick up after an inactive August.”

BofA Merrill Lynch analysts report they now expect $100 billion of CLO supply for the year, up from an estimate at the start of 2015 of $75 billion to $90 billion of volume.

“With issuance to date having already surpassed $74 [billion] and a sizable number of deals remaining in the pipeline, we revise up our forecast to $100 [billion],” BofA Merrill Lynch analysts said in a note.

Wells Fargo Securities, LLC analysts earlier in the month raised their CLO issuance forecast for the year by $15 billion to $105 billion.

In new middle-market CLO issuance, NewStar Financial, Inc. priced a $397.81 million deal that complies with European Union risk retention regulations.

Secondary active

In the secondary market, BWIC volumes totaled $680 million over the previous week with the majority in investment-grade paper, according to BofA Merrill Lynch.

“While trading was minimal in junior mezz and equity, investment-grade spreads held up well with overall levels unchanged from two weeks ago,” the analysts said.

The European CLO secondary market also was busy with about €110 million of mostly mezzanine bonds on BWIC lists, according to BofA Merrill Lynch.

“The supply was generally well absorbed, and we estimate spread levels tightened around 5-15 [basis points] for BBB and below rated bonds from both 1.0 and 2.0 deals,” the analysts said.

NewStar prices CLO

NewStar Financial priced $397.81 million of notes due Aug. 25, 2027 in the NewStar Commercial Loan Funding 2015-2 LLC transaction, according to a source.

The CLO sold $205 million of class A-1 senior secured floating-rate notes at Libor plus 200 bps and $23 million of 3.46% class A-2 senior secured fixed-rate notes at the top of the capital structure.

Wells Fargo Securities was the placement agent.

NewStar Financial will manage the CLO.

The non-call period on the CLO ends Aug. 25, 2017. The reinvestment period ends Aug. 25, 2019.

The transaction is backed primarily by small and medium enterprise senior secured loans, cash and eligible investments.

Proceeds from the deal will be used to purchase a $400 million portfolio of middle-market loans.

NewStar Financial has priced two CLOs year to date.

The Boston-based middle-market commercial lender priced three CLO transactions in 2014.

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