MacKay Shields, AlbaCore Capital price euro CLOs; Volcker Rule change seen as positive

By Cristal Cody

Tupelo, Miss., June 26 – Two CLO managers tapped the euro-denominated primary market with new deals.

MacKay Shields Europe Investment Management Ltd. priced €210.6 million of notes in the manager’s first broadly syndicated CLO offering of the year.

AlbaCore Capital LLP brought €232.65 million of notes in a debut euro-denominated CLO.

More than €8 billion of euro-denominated CLOs have priced year to date.

About €15 billion of euro-denominated supply is expected by market participants for the year.

Meanwhile, leveraged loan funds “remain volatile with outflows of $91 million in the week ending June 24,” Fitch Ratings said in a report on Friday.

Outflows declined from $563 million of outflows in the prior week.

Year to date, net outflows total $16.4 billion, Fitch said.

In other action, the five federal agencies overseeing the Volcker Rule published the final rule amending the covered fund provisions on Thursday, and the final rule’s amendment to the loan securitization exemption would permit CLOs to hold up to 5% of the portfolio in non-loan assets, Moody’s Investors Service said in a report on Friday.

The Federal Reserve, Commodity Futures Trading Commission, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Securities and Exchange Commission approved the changes to the Volcker Rule, which are expected to go into effect on Oct. 1.

“While the final rule is largely the same as the January proposed amendment, in a change from the proposal, the final rule now limits these assets to debt securities, other than convertible debt and asset-backed securities,” Moody’s vice president Lana Deharveng said in a release.

“As we highlighted in the report we published in February, although the expansion of eligible collateral will provide CLO managers with flexibility in changing market conditions and an opportunity to differentiate themselves, the inclusion of bonds adds credit risk and can alter the risk profile of CLO portfolios,” Deharveng said. “However, similar to pre-Volcker CLOs, certain types of derivatives, limits, higher subordination and other measures can mitigate many of these risks.”

The amendments would allow U.S. banks to own tranches from CLOs holding limited 5% buckets of debt securities, Wells Fargo Securities LLC analysts said in a note on Friday.

“This bucket excludes ABS and convertible debt, and represents a more narrow definition than the 5% bucket of any non-loan assets originally proposed,” the analysts said. “We view CLOs adding bond buckets as positive for CLO equity and marginally negative for CLO debtholders. Bond buckets allow for more trading – and possibly more trading gains – which should benefit equity. Historically, bonds have lower recoveries, hurting debtholders.”

Elsewhere, securitized secondary volume dropped to $604.91 million in high-grade CBO/CDO/CLO notes on Thursday after posting $1 billion-plus trading sessions on Tuesday and Wednesday, according to Trace data.

Trading volume included $1.15 billion of issues on Wednesday, $1.14 billion on Tuesday and $872.01 million on Monday.

Secondary non-high-grade CBO/CDO/CLO supply was down slightly at $173.49 million on Thursday, compared to $175.33 million on Wednesday, $209.22 million on Tuesday and $102.16 million on Monday.

Prices on Thursday averaged 96.20 for high-grade issues, mostly steady from 96.10 on Wednesday, 96.80 on Tuesday and 96.60 on Monday.

Non-high-grade CBO/CDO/CLO paper traded at an average 76.60 over the previous session, compared to 81.40 on Wednesday, 72.30 on Tuesday and 86.40 on Monday.

MacKay Shields prices

MacKay Shields Europe Investment Management priced €210.6 million of notes due Aug. 15, 2033, according to market sources.

MacKay Shields Euro CLO-2 DAC sold the €124 million of class A floating-rate notes at Euribor plus 155 basis points.

BNP Paribas Securities Corp. was the placement agent.

The deal is backed primarily by euro-denominated broadly syndicated leveraged loans and bonds.

MacKay Shields Europe Investment Management priced its first euro-denominated CLO in 2019.

The investment management firm and subsidiary of MacKay Shields LLC is based in Dublin.

AlbaCore brings CLO

AlbaCore Capital priced €232.65 million of notes due July 2031 in its first CLO transaction, according to market sources.

AlbaCore Euro CLO I DAC sold €123 million of class A senior secured floating-rate notes at Euribor plus 153 bps in the senior tranche.

Merrill Lynch International was the placement agent.

The offering is collateralized primarily by euro-denominated broadly syndicated leveraged loans and bonds.

AlbaCore Capital is an investment management firm based in London.

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