CLO primary action quiet; KKR closes $384 million CLO deal, plans to be 'frequent issuer'

By Cristal Cody

Tupelo, Miss., Jan. 23 - CLO market action was quiet on Thursday with insiders out at industry events, according to informed sources.

More than $13 billion of broadly syndicated and middle-market CLO transactions are in the pipeline, according to market sources.

CLO issuance finished 2013 at $80.2 billion with 49 U.S. CLOs priced during the fourth quarter, Fitch Ratings said in a report on Thursday.

In 2013, €7.5 billion of European CLOs priced, which consisted of 21 transactions by larger established managers, Fitch said in a separate report.

Europe's risk retention rule, which requires CLO managers to retain a stake in the CLO, is expected "to be the primary brake on issuance in 2014," Fitch said.

With limited primary issuance of European leveraged loans, collateral for new CLOs will chiefly come from banks' balance sheets and CLO 1.0 deals that will be called, Fitch said.

"In the latter case, Fitch estimates that €6 billion to €11 billion could become available for refinancing, potentially funding 15 to 30 CLO 2.0 transactions in the next 18 months," Fitch said.

KKR closes

In other activity on Thursday, KKR Financial Holdings LLC announced that it closed on its previously reported $384 million CLO deal.

"This transaction reflects our goal of being a frequent issuer in the CLO market," Craig J. Farr, chief executive officer of KFN, said in a release. "We continue to see attractive risk-adjusted cash returns in CLO subordinated notes, which have the added benefit of diversifying KFN's CLO portfolio."

The KKR Financial CLO 2013-2, Ltd. offering of notes due Jan. 23, 2026 priced the $100 million tranche of class A-1A senior secured floating-rate notes (Aaa//AAA) at Libor plus 155 basis points in December.

KKR said it will hold the entirety of the roughly $45 million of subordinated notes in the CLO.

Greensledge Capital Markets LLC arranged the deal, and KKR Capital Markets LLC was the placement agent.

KKR Financial Advisors II, LLC is the CLO manager.

The CLO has a non-call period that ends in January 2016 and a reinvestment period that ends in January 2018.

KKR said it plans to use the proceeds to finance a portfolio of primarily senior secured leveraged loans.

The deal was the second CLO transaction that KKR Financial priced in 2013. The specialty finance firm brought the $519.4 million KKR Financial CLO 2013-1, Ltd./KKR Financial CLO 2013-1, LLC offering in June.

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