Telos eyes $363.25 million CLO; wider spreads help to slow deal flow; mezzanine notes weak

By Cristal Cody

Tupelo, Miss., June 21 - Telos Asset Management LLC plans to bring a $363.25 million collateralized obligation offering of notes, while new issuance in June remains light on the back of wider spreads, according to market sources on Friday.

CLO issuance in June reached $5.1 billion to date, above the $5 billion sold in May. More than $42 billion of CLOs have priced year to date, according to market sources.

"The CLO primary market is still open, although levels are wider and issuance is down relative to Q4 2012 and Q1 2013," Dave Preston, senior analyst at Wells Fargo Securities, LLC, said in a note on Friday. "With large AAA buyers on the sidelines, or looking to purchase at wider levels, the primary market appears to be searching for true clearing levels."

Another market source said on Friday that the forward calendar includes $16.7 billion in 36 deals.

The slowing June deal pipeline has been attributed to the move out in spreads, sources said.

"Wider AAA-rated spreads are responsible for less than 40% of the increased cost of CLO debt; larger moves in the smaller BBB and BB tranches also have had a significant influence," Preston said.

CLO mezzanine tranches have taken the brunt of weakness as loan markets stayed calmer while bond markets got hit in June, according to market sources.

"Large loans from issuers with high-yield bonds in their capital structure have been the worst performers since the market peak in mid-May, driven by bond manager selling," Barclays said in a note on Friday.

In the CLO market, the "pain was primarily felt lower in the capital stack, as mezzanine spreads moved 50 bps-100 bps wider," Preston said. "However, selling was not rampant in CLOs, and the primary market managed to keep moving despite wider AAA spreads and a relative pullback by some investors."

BB-rated CLO tranches are wider at Libor plus the 625 bps area, compared to mid-May when new tranches priced in the 550 bps spread area, sources said.

AAA-rated tranches are holding at Libor plus 130 bps, wider than CLOs sold at 110 bps to 112 bps spreads in May.

Telos to sell $363.25 million

The Telos Asset Management offering, Telos CLO 2013-4, Ltd./Telos CLO 2013-4, LLC, includes $3.5 million of class X notes due July 15, 2017 (Aaa); $214 million of class A notes due July 15, 2024 (Aaa); $46.5 million of class B notes due July 15, 2024; $29 million of class C notes due July 15, 2024; $19.25 million of class D notes due July 15, 2024; $16 million of class E notes due July 15, 2024 and $35 million of subordinated notes due July 15, 2024.

BNP Paribas Securities Corp. is the placement agent.

Telos Asset Management will be the CLO manager.

The issue has a non-call period that ends July 15, 2015 and a reinvestment period that ends July 15, 2017.

The notes will be collateralized primarily by broadly syndicated first-lien senior secured corporate loans.

The deal is expected to close on July 23.

© 2015 Prospect News.
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