Palmer Square Capital plans ‘pattern of serial issuance’; CLO deal pipeline remains full

By Cristal Cody

Tupelo, Miss., June 10 – Palmer Square Capital Management LLC expects to return to the CLO primary market following the settlement of its third deal, the $457 million Palmer Square CLO 2014-1, Ltd. offering brought in April.

The Mission Woods, Kan.-based investment management firm hopes to “continue to have a pattern of serial issuance,” Christopher D. Long, president of Palmer Square Capital Management, said in an interview on Tuesday. “We’re certainly looking to build that part of our platform.”

The firm brought two CLO deals in 2013 – the $362.35 million Palmer Square CLO 2013-1, Ltd. transaction and the $463.8 million Palmer Square CLO 2013-2, Ltd./Palmer Square CLO 2013-2, LLC offering.

All three CLOs are designed to invest primarily in institutional senior secured bank loans, according to a news release from the firm.

Palmer Square Capital Management, majority-owned by Montage Investments, the asset management arm of Leawood, Kan.-based Mariner Holdings, has about $4 billion in assets under management.

Part of the growth in CLOs is the “insatiable demand for yield,” Long said. “If you look at CLOs compared to other similarly rated assets, the relative value is tremendous. People have gotten more comfortable that the structure really does work, and as a result, you’re seeing a new buyer base that’s coming into the market.”

Pension funds, asset managers and banks are showing more activity in the AAA tranches, he said.

Hedge fund activity in the space has been consistent, and hedge funds remain steady buyers lower in the capital stack, Long said.

Tranches across the capital structure have widened since Palmer Square Capital Management brought its first CLO deals in 2013, though new issue AAA notes are showing signs of tightening to the Libor plus 140 basis points area.

“It’s still pretty wide, but they’ve started to come in a little bit,” Long said.

AAA notes priced as tight as Libor plus 115 bps a year ago.

“Coming out in January, the market did not have a lot of new issuance with stories about the Volcker Rule and its impact,” Long said. “Since then, the [market] has gotten more clarity and new issuance has definitely taken off. There’s a lot in the pipeline. Demand is such that deal sizes are larger than what they were last year.”

More than $50 billion of CLOs have priced year to date.

Looking ahead, the pipeline remains full with more than $13 billion of CLO transactions in marketing, a source said.

Apollo highlights deals

Apollo Global Management, LLC noted in a news release on Tuesday that the firm priced more than $2 billion in two previously reported U.S. and European deals.

The firm’s $1.5 billion ALM XIV, Ltd. offering is the “largest CLO transaction completed in [the] U.S. in seven years,” according to the release.

Apollo also priced the €382.4 million ALME Loan Funding II Ltd., the firm’s second European CLO deal.

Both CLOs will invest in corporate leveraged loans, according to the release.

Since 2010, Apollo has priced 13 U.S. and European CLOs, raising $8.4 billion in aggregate.

Apollo said its “CLO strategy is a core part of the firm’s credit business.”

The firm is the largest CLO manager in the United States with 23 CLOs totaling about $13 billion in assets under management.

New York City-based Apollo Global Management priced four CLO deals in 2013.

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