Risk retention in focus; Anchorage Capital, Feingold price; Covenant Credit sells CLO

By Cristal Cody

Tupelo, Miss., Nov. 6 – CLO pricing activity remains steady as market insiders continue to study the finalized risk retention rules for U.S. and European issuance, sources said on Thursday.

“Market participants are most focused on establishing a solution that allows managers to satisfy U.S. and EU risk retention,” Wells Fargo Securities, LLC senior analyst Dave Preston and associate analyst Jason McNeilis said in a note on Thursday.

“Currently, it appears that CLO managers and law firms are examining different CLO manager structures, to include the possibility of CLO equity investors working with CLO management teams to form CLO managers.”

Under the Dodd-Frank Act requirements, CLO managers must retain 5% capital of new deals beginning in 2016. U.S. CLOs brought before Oct. 21, 2016 will be grandfathered.

Risk retention already is effective in Europe.

“U.S. risk retention regulates the issuers of securitizations; EU risk retention regulates the investors in securitizations,” the Wells Fargo analysts said. “In Europe, there appears to be a lack of clarity around grandfathering.”

Specifically, market participants question if euro-denominated CLOs issued under Rule 122a between 2011 and 2014 and those issued before 2011 but add or replace assets after 2014 will be grandfathered, according to the note.

In new U.S. CLO primary activity, Anchorage Capital Group, LLC sold $522.5 million of notes due Nov. 15, 2026 in the Anchorage Capital CLO 5, Ltd./Anchorage Capital CLO 5, LLC offering, a source said.

The CLO priced $305 million of class A senior secured floating-rate notes at Libor plus 160 basis points at the top of the structure and $12.5 million of class F secured deferrable floating-rate notes at Libor plus 590 bps at the bottom of the stack.

Morgan Stanley & Co. LLC was the placement agent.

New York City-based Anchorage Capital has priced three CLO deals year to date.

Also in the primary market, Feingold O’Keefe Capital, LLC sold $515 million of notes due Oct. 18, 2026 in the Hull Street CLO Ltd./Hull Street CLO LLC deal, according to a market source.

The CLO placed $316 million of class A floating-rate notes (/AAA/) at Libor plus 150 bps at the top of the stack and $10 million of class F deferrable floating-rate notes (/B/) at Libor plus 565 bps at the bottom.

Credit Suisse Securities (USA) LLC was the placement agent.

Boston-based Feingold O’Keefe Capital has priced three CLO offerings over the year.

Covenant Credit prices

In other pricing action, Covenant Credit Partners LLC sold $525 million of notes due Oct. 19, 2026 in the firm’s second CLO deal, according to a market source.

Covenant Credit Partners CLO II Ltd./Covenant Credit Partners CLO II LLC priced $315 million of class A floating-rate notes at Libor plus 149 bps at the top of the capital structure. At the bottom of the capital stack, the CLO priced $10 million of class F floating-rate notes at Libor plus 575 bps.

Morgan Stanley & Co. LLC arranged the transaction.

Charlotte, N.C.-based Covenant Credit Partners brought the $527.5 million debut Covenant Credit Partners CLO I Ltd./Covenant Credit Partners CLO I LLC deal in June.

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