KKR Financial brings $412 million CLO deal; secondary market ‘feels firmer’

By Rebecca Melvin

New York, Nov. 17 – KKR Financial Advisors II LLC has priced $412 million of notes in the KKR CLO 13 Ltd./KKR CLO 13 LLC collateralized loan obligation deal, which matures January 2028, a market source said.

As the top of the deal structure, the CLO priced $2 million series X notes at Libor plus 100 basis points and $206 million of class A-1A senior secured floating-rate notes at Libor plus 152 bps.

In the secondary market, action in bid wanted in competition, or BWIC, lists was feeling “relatively busy” and “the levels felt like they were firming a bit,” a CLO investor told Prospect News.

Last week, BWIC volume was light, totaling just over $430 million, according to BofA Merrill Lynch research.

AAA BWICs moderated, but positioning in the investment-grade part of the capital structure continued to dominate activity with CLO 2.0/3.0 senior mezzanine volumes picking up modestly compared to prior weeks. As for the equity BWIC offerings, many investors are taking a wait-and-see approach ahead of a potential rate increase by the Federal Reserve in December, which has the potential of turning loan fund flows positive and boosting loan prices, BofA Merrill Lynch analysts wrote in securitization research published on Friday.

CLO spreads held steady last week compared to the week earlier. But spreads are predicted to tighten in the first quarter.

Limited new issuance could lead to slight tightening of spreads in securitized products in tandem with better relative value over the next three to four months, BofA Merrill Lynch analysts wrote.

“When January comes, the need to play offense and become less defensive should increase. Although the Fed is likely to have hiked rates by that time, the opportunity cost to investors for sitting in cash will still be very high. We think that reality will ultimately motivate investors to allocate capital to sectors such as CLOs and CMBS, where we believe the compensation to liquidity providers is attractive,” BofA Merrill Lynch analysts wrote.

KKR CLO tranches detailed

KKR CLO 13 was brought by a subsidiary of global investment firm Kohlberg Kravis Roberts & Co. LP. Morgan Stanley was the underwriter.

The CLO priced $2 million series X notes at Libor plus 100 bps; $206 million of class A-1A senior secured floating-rate notes at Libor plus 152 bps; $50 million of class A-1L senior secured floating-rate loans at Libor plus 147 bps; and up to $50 million of class A-1B senior secured floating-rate notes at Libor plus 147 bps.

Also priced were $27 million of class B-1 senior secured floating-rate notes at Libor plus 220 bps; $20 million of 4% class B-2 senior secured fixed-rate notes; $20 million of class C senior secured deferrable floating-rate notes at Libor plus 305 bps; $24 million of class D senior secured deferrable floating-rate notes at Libor plus 395 bps; $21 million of class E senior secured deferrable floating-rate notes at Libor plus 625 bps; $7 million class F senior secured deferrable floating-rate notes at Libor plus 815 bps; and a $35 million equity tranche of subordinated notes that was not rated.

The class A-1L loans can be converted to class A-1B notes after the closing date.

The deal is backed primarily by broadly syndicated first-lien senior secured corporate loans and other assets.

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