Kingsland prices $481 million CLO; secondary quiet on primary supply; European notes firm

By Cristal Cody

Tupelo, Miss., June 4 - Kingsland Capital Management, LLC brought a $481 million collateralized loan obligation offering of floating-rate notes and fixed-rate mezzanine tranches, according to a market source on Wednesday.

The CLO priced the AAA-rated notes at Libor plus 150 basis points.

More than $12 billion of CLO deals are in the pipeline, including a $621.22 million transaction from CIFC Asset Management LLC and a euro-denominated CLO deal from 3i Debt Management Investments Ltd., sources said.

Secondary CLO market activity has stayed quiet on the large amount of primary issuance in May and steady activity through the first week of June, according to market sources.

More than $10 billion of CLOs priced in May and more than $50 billion of broadly syndicated and middle market CLOs have been issued year-to-date.

"Secondary CLO spreads have drifted wider again in the past two weeks, as investor interest in secondary paper appeared to wane," Wells Fargo Securities, LLC senior analyst Dave Preston and associate analyst Jason McNeilis said in a note. "We believe the large amount of primary supply shifted attention away from secondary bonds."

Spreads likely will stay softer if issuance remains strong, according to the analysts.

U.S. AAA rated notes are flat in the secondary market at the Libor plus 150 bps area, while mezzanine tranches have widened, the analysts said.

CLO BBB notes are 15 bps wider from a month ago at Libor plus 430 bps area and BB rated tranches are 20 bps wider on the month at Libor plus 640 bps area.

European CLOs are better in the secondary market, with A and BBB notes 10 bps tighter from a month ago, the Wells Fargo analysts said.

European CLO A rated notes are trading around Euribor plus 250 bps and BBBs are trading at the Euribor plus 340 bps area, according to the analysts.

Fitch Ratings said in a report on Wednesday that European CLOs continue to demonstrate stable ratings and strong performance.

Vintage CLOs, or CLOs 1.0, have "performed in line with investor expectations, with an annual average cash return of approximately 14% and an average cumulative distribution near 90% of the equity balance," Fitch said. "Amend and extend activity has diminished as refinancing options have become available through the high yield bond market and on the back of new CLO issuance."

CELF Advisors LLP, part of Carlyle Group LP, was in the European primary market on Tuesday with the €402 million Carlyle Global Market Strategies Euro CLO 2014-2, Ltd. offering.

More than €4 billion of euro-denominated CLOs have priced in 2014, according to market sources.

Kingsland AAAs at 150 bps

Kingsland Capital Management sold $481 million of notes due July 24, 2026 in the Kingsland VII/Kingsland VII LLC CLO offering, according to a market source.

The CLO priced $297 million of class A senior secured floating-rate notes (Aaa//AAA) at Libor plus 150 basis points; $48.5 million of class B senior secured floating-rate notes (Aa2//AA) at Libor plus 220 bps; $21.5 million of 5.565% class C deferrable fixed-rate notes (//A); $17.75 million of 6.738% class D deferrable fixed-rate notes (//BBB); $21.5 million of 8.858% class E deferrable fixed-rate notes (//BB) and $74.75 million of subordinated notes.

GreensLedge Capital Markets LLC arranged the deal.

Kingsland Capital Management will manage the CLO, which is backed primarily by first lien senior secured loans.

Proceeds from the deal will be used to purchase a portfolio of mostly senior secured leveraged loans.

Kingsland Capital Management was last in the primary market in 2013 with the $367.7 million Kingsland VI/Kingsland VI LLC transaction.

The investment firm is based in New York.

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