July CLO issuance lowest in year; Sound Point sells AAA CLO tranche at 135 bps spread

By Cristal Cody

Tupelo, Miss., Aug. 1 - July ended as the slowest month for CLO issuance in a year with about $3.4 billion priced in new deals, according to market sources on Thursday.

"Lowest monthly volume since July 2012," one source said.

In comparison, June volume hit more than $7 billion. The July pipeline had been expected to slow to $4 billion to $5 billion as summer vacations took hold and spreads widened.

"There's still a lot of deals out there," a source said. "They just haven't come to market."

Another market source noted that the slow issuance in July 2012 was followed by $36 billion of new CLO deals for the rest of the year.

The August deal calendar is expected to be busier with several U.S. and European CLO transactions in the works, sources said.

European CLOs in the pipeline likely will price in late August or early September, according to informed sources.

GSO Capital Partners LP plans to sell €410 million in the Herbert Park CLO offering, while Pramerica Investment Management Ltd. expects to bring its second European CLO transaction of the year in August, a source said.

3i Debt Management, a unit of London-based 3i Group plc, also has a €300 million European CLO in the pipeline.

In new U.S. issuance, Sound Point Capital Management LP priced the $420.75 million Sound Point CLO III, Ltd. offering of notes due Aug. 22, 2025 wide but in line with other recently printed deals, according to informed sources.

Sound Point sold the $248 million tranche of class A senior floating-rate notes (Aaa//AAA) at Libor plus 135 basis points.

Sound Point CLO III prices

In the rest of the capital structure, Sound Point priced $4 million of class X senior floating-rate notes (Aaa//AAA) at Libor plus 100 bps; $53.5 million of class B senior floating-rate notes (Aa2) at Libor plus 200 bps; $20 million of class C-1 floating-rate mezzanine notes (A2) at Libor plus 270 bps; $5 million of 5.17% class C-2 fixed-rate mezzanine notes (A2); $23.5 million of class D floating-rate mezzanine notes (Baa3) at Libor plus 390 bps; $19 million of class E floating-rate junior notes (Ba3) at Libor plus 460 bps and $8.75 million of class F floating-rate junior notes (B2) at Libor plus 535 bps.

The deal also included $39 million of subordinated notes.

Morgan Stanley & Co. LLC was the underwriter.

Sound Point Capital Management will manage the CLO, which is collateralized primarily by broadly syndicated first-lien senior secured corporate loans.

The New York-based asset manager plans to use the proceeds to purchase a $400 million portfolio of primarily leveraged loans.

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