GoldenTree sells $614 million CLO; AAAs forecast to firm; secondary BBBs at tight end

By Cristal Cody

Tupelo, Miss., March 10 - Global arbitrage new issue volume in the broadly syndicated collateralized loan obligation market rose to more than $14 billion following deals brought the first week of March, according to informed sources on Monday.

GoldenTree Asset Management LP priced a $614 million CLO and placed the AAA tranche at Libor plus 145 basis points, 5 bps tighter than most issuance this year, according to an informed source.

In addition, Kramer Van Kirk Credit Strategies LP priced the previously announced KVK CLO 2014-1 Ltd./KVK CLO 2014-1 LLC transaction via Goldman Sachs & Co., according to a market source. Final pricing details were not available by press time.

With 18 U.S. deals and two European transactions, February ended on a much stronger note than in the previous month when five deals priced as the market gains a more positive outlook on the Volcker Rule, sources said.

The Volcker Rule, announced in December, prohibits banks from owning CLOs that hold bonds. Market participants continue to seek clarity about the rule from regulators.

"Once the Volcker issues are resolved, we expect to see at least 10-15 bps tightening over time in CLO AAA new issue pricing," according to a report from Morgan Stanley & Co. LLC analysts Vishwanath Tirupattur and Mia Qian. "Heading into March, [the] U.S. CLO market currently sees a strong pipeline of $18.21 billion. Both CLO debt cost of funding and new issue loan spread levels have marginally widened throughout February, leaving new issue CLO arbitrage levels about the same as in January."

In 2014, AAA securities have priced wider at the Libor plus 150 bps to 155 bps area, in from the tights of Libor plus 110 bps seen a year ago, according to market sources.

New issue BBB CLO tranches have priced this year in the Libor plus 410 bps area, compared to a range of Libor plus 370 bps to Libor plus 505 bps over the past 12 months, the Morgan Stanley analysts said.

Secondary volume

In the U.S. CLO secondary market, investment-grade CLO volume was $3.2 billion and junk-rated CLO volume was $2.6 billion in February, according to Morgan Stanley research.

CLO AAA spreads, which have traded over a range of Libor plus 90 bps to Libor plus 130 bps in the past year, are currently flat at Libor plus 110 bps, the Morgan Stanley analysts said.

BBB spreads are better at the Libor plus 265 bps area, on the tight end of the past year's trading range of Libor plus 260 bps to Libor plus 450 bps.

In the European CLO secondary market, AAA CLO tranches are trading at a spread of Euribor plus 130 bps, compared to the range of Euribor plus 125 bps to Euribor plus 175 bps over the past 12 months, according to the Morgan Stanley note.

Euro-denominated CLO BBB-rated tranches have tightened 60 bps just in the past three months to Euribor plus 400 bps, in from the wides of Euribor plus 730 bps seen over the last year, the note said.

GoldenTree sells $614 million

GoldenTree Asset Management priced $614 million of notes due April 15, 2026 in the GoldenTree Loan Opportunities VIII, Ltd./ GoldenTree Loan Opportunities VIII, LLC deal, according to an informed source on Monday.

The CLO sold $364.8 million of class A senior secured floating-rate notes (Aaa//AAA) at Libor plus 145 bps; $56.8 million of class B-1 senior secured floating-rate notes (Aa2) at Libor plus 203 bps; $15 million of 4.45% class B-2 senior secured fixed-rate notes (Aa2); $28.5 million of class C mezzanine deferrable floating-rate notes (A2) at Libor plus 270 bps; $38.8 million of class D mezzanine deferrable floating-rate notes (Baa3) at Libor plus 362 bps; $41.7 million of class E mezzanine deferrable floating-rate notes (Ba3) at Libor plus 451 bps; $6 million of class F mezzanine deferrable floating-rate notes (B3) at Libor plus 535 bps and $62.4 million of subordinated notes.

J.P. Morgan Securities LLC arranged the deal.

GoldenTree Asset Management is the CLO manager.

The CLO is backed primarily by first-lien senior secured corporate loans, senior secured notes and eligible investments.

Proceeds from the deal will be used to purchase a portfolio of about $600 million of primarily senior secured leveraged loans.

In 2013, GoldenTree Asset Management priced the $668.75 million GoldenTree Loan Opportunities VII, Ltd./GoldenTree Loan Opportunities VII, LLC deal, the $195 million GT Loan Financing I, Ltd./GT Loan Financing I, LLC offering and the €300.32 million GoldenTree Credit Opportunities European CLO 2013-1 BV transaction.

GoldenTree Asset Management is a New York City-based private investment firm.

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