CLO asset classes rebound, pickup in BB-rated spreads; Brookside to close $471.38 million CLO

By Cristal Cody

Tupelo, Miss., May 22 - Collateralized loan obligation asset classes have rebounded across the board, according to market sources.

"CLO products offer a better yield for risk relative to other asset classes," said Josh Terry, managing director and head of structured products at Highland Capital Management, LP, which manages 23 CLOs and is the largest U.S. CLO manager with about $13.5 billion of assets under management.

The Dallas-based firm sold a $525.5 million CLO in February, its first transaction since 2008.

"When you look at triple-A CLOs, the majority of the capital structure of CLOs, they're still pricing in Libor plus 110 [basis points] to Libor plus 120 [bps]," Terry said. "That's meeting the interest and demand for triple A paper."

Triple-A tranches typically make up about 60% to 65% of the capital structure and "historically have been the hardest tranche to place because of regulations," he said.

Spreads have seen a "significant" pickup in double B tranches of CLOs, Terry said.

Double A rated CLO tranches are trading in a range of Libor plus 135 bps to 165 bps, while BBB tranches are holding in at Libor plus 350 bps to 400 bps area, according to a market source.

BB rated CLO notes are trading in the Libor plus 550 bps to 600 bps range.

Meanwhile new CLO issuance is expected before the month ends, including a €300 million CLO offering from Carlyle Group through Barclays plc, according to market sources. Carlyle Global Market Strategies Euro CLO 2013 plans to price €183 million of class A notes (/AAA/); €30 million of class B notes (/AA/); €17 million of class C notes (/A/); €13 million of class D notes (/BBB/); €21 million of class E notes (/BB/); and a €36 million equity tranche.

Brookside to close

Elsewhere in the CLO market, Shenkman Capital Management, Inc. is expected to close Thursday on the previously reported $471.38 million Brookside Mill CLO Ltd./Brookside Mill CLO LLC, according to an informed source.

Brookside sold $471.38 million in 10 tranches of notes due April 2025 in April.

The $237 million AAA-rated slice of class A-1 floating-rate notes (/AAA/AAA) priced at Libor plus 115 bps.

New York City-based Shenkman, which now has two CLOs under management, is the collateral manager.

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