Spreads tighten for CLOs; American Capital improves pricing on $414 million of notes

By Cristal Cody

Tupelo, Miss., April 1 - Spreads tightened over March for collateralized loan obligation bond offerings, while private equity firm American Capital, Ltd. said it priced $414 million of CLO bonds due April 20, 2025 with better terms than the last CLO it brought in September.

"We are pleased that we materially improved pricing on the financing of our latest CLO versus the CLO that we raised last September," Mark Pelletier, American Capital managing director of the CDO and CLO group, said in a release on Monday. "We now manage three CLOs and have investments in the equity of 25 CLOs."

American Capital affiliates ACAS CLO 2013-1, Ltd./ACAS CLO 2013-1, LLC sold eight tranches of notes in the offering with the first tranche of $246.5 million of class A floating-rate notes (Aaa/AAA/) priced at Libor plus 118 basis points.

American Capital last priced a CLO when ACAS CLO 2012-1 sold $362.23 million of floating-rate, fixed-rate and subordinated notes in an offering that closed in September.

Interest remains "keen" in CLOs but the spread tightening could discourage investors, Moody's Investors Service said in its March report of the collateralized loan obligation market.

"Some investors in senior tranches of CLOs noted the tight spreads for recent CLOs, which ranged from 120 bps to less than 100 bps in some cases," Moody's said in the report. "At these levels, spreads could be reaching the limit of investors' willingness to invest. Some investors also felt that pricing does not always reflect the significant differences in individual CLO characteristics."

Loan collateral spreads have narrowed in response to market liquidity and benign credit conditions, according to Moody's.

"The pricing of CLOs, as an arbitrage product, reflects a negotiated tradeoff between equity and debt investors, who, because of market trends, have to accept the declining spreads on loan collateral," Moody's said. "Strong demand from senior investors has driven CLO spreads to their post-2008 crisis lows."

New issuance of collateralized loan obligation bonds that closed in March include Acis CLO 2013-1 Ltd./Acis CLO 2013-1 LLC; Cedar Funding II CLO Ltd./Cedar Funding II CLO LLC; NXT Capital CLO 2013-1, LLC; OCP CLO 2013-3 Ltd./OCP CLO 2013-3 Corp.; Figueroa CLO 2013-1, Ltd./Figueroa CLO 2013-1, LLC; CIFC Funding 2013-I, Ltd./CIFC Funding 2013-I, LLC and Cairn CLO III B.V.

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