CLO spreads widen in market sell-off; Seix refinances two CLOs; Buckhead to refinance CDO

By Cristal Cody

Tupelo, Miss., March 16 – CLO spreads are widening in the market turmoil as Americans face school, entertainment and business closings and a mass quarantine to stave off the coronavirus.

On Monday, the White House recommended for U.S. residents to gather in groups of no more than 10 and to work from home if possible for the next 15 days.

Bars, restaurants, schools and churches have closed across the country with some including, McDonald’s Corp., limiting service to take-out only.

The Federal Reserve on Sunday announced an emergency rate cut of 100 basis points, lowering the federal funds target range to 0% to 0.25%.

The Fed also plans to begin purchasing Treasuries in a quantitative easing program that includes $500 billion in Treasuries and $200 billion in agency mortgage-backed securities.

The moves are seen as credit positive for structured finance, according to Moody’s Investors Service on Monday.

“The Fed’s further rate cut to counter Covid-19 yesterday is credit positive for many U.S. structured finance sectors, such as mortgage-backed securities and consumer asset-backed securities, because it will increase debt affordability for borrowers and support liquidity and asset prices, among other benefits,” Jian Hu, managing director of Moody’s Investor Service, said in an emailed statement.

“For collateralized loan obligations, although lower short-term rates will decrease excess spread, a credit negative, lower rates will also cut leveraged loan borrowers’ payment obligations and revive dormant Libor floor benefits in CLO weighted average spread, both credit positives,” Hu said. “The extent of the rate cut’s credit effects will depend on the length and severity of the coronavirus outbreak.”

CLO AAA spreads are now wider than levels seen in February 2016, according to a Wells Fargo Securities LLC research note on Monday.

“However, lower mezzanine tranches (BBB/BB) are still well tight of the wide levels of February 2016, despite lower market value overcollateralization ratios than in that period,” according to the report.

BB spreads are in the low to mid Libor plus 900 bps range, compared to nearly 1,200 bps in February 2016, the Wells Fargo analysts said.

AAAs moved out 78 bps on the week ended Friday to the Libor plus 200 bps area in secondary trading, BofA Securities, Inc. analysts said in a research note released on Monday.

CLO BB tranches widened 250 bps on the week to the Libor plus 1,100 bps average.

“Contagion and fear spread across the world and across markets this week leading to spikes in spreads across securitized products and corporates,” the BofA analysts said.

The securitized secondary market saw its highest AAA supply in BWICs since 2011 last week with $1.5 billion of paper up for bids, according to the report.

“Supply was driven by a combination of liquidity needs, rotation into other assets and reducing exposure to floating-rate bonds,” the BofA analysts said. “AAA spreads are currently at post-crisis wides at 180 bps for short-WAL and 230 bps for long-WAL profiles.”

New issue spreads are flat across the capital stack on the week with AAAs at the Libor plus 119 bps average and BB tranches at the Libor plus 825 bps area.

Some deals are still getting done but new and refinancing issuance is likely to remain light for the month, market sources report.

In the refinancing space, Seix Investment Advisors LLC priced $386.5 million of notes in a refinancing of a vintage 2016 CLO and $410 million of notes in a refinancing of a 2017 CLO.

Buckhead One Financial Opportunities, LLC intends to refinance notes from a 2017 CDO.

Seix brings $410 million reprint

Seix Investment Advisors priced $410 million of notes due Oct. 16, 2029 in a refinancing of three tranches from a vintage 2017 CLO deal, according to a market source and a notice of proposed supplemental indenture on Monday.

Mountain View CLO 2017-1, Ltd./Mountain View CLO 2017-1, Corp. sold $320 million of class A-R senior floating-rate notes at Libor plus 109 bps in the AAA-rated tranche.

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

The original transaction was issued on Aug. 10, 2017.

The investment management company and affiliated manager of Virtus Investment Partners is based in Park Ridge, N.J.

Seix refinances 2016-1 CLO

Seix Investment Advisors also priced $386.5 million of notes in a refinancing of a vintage 2016 CLO deal, according to a market source and a notice of proposed supplemental indenture on Monday.

Mountain View CLO 2016-1, Ltd./Mountain View CLO 2016-1, Corp. sold $256 million of the class A-R senior floating-rate notes at par to yield Libor plus 136 bps.

Mizuho Securities (USA) LLC was the refinancing placement agent.

The maturity was extended to April 14, 2033 from Jan. 14, 2029.

The original transaction was and issued Dec. 8, 2016.

The investment management company and affiliated manager of Virtus Investment Partners is based in Park Ridge, N.J.

Buckhead plans deal

Buckhead One Financial Opportunities intends to refinance notes due Jan. 25, 2029 from the BNFS 2017-1/BNFS 2017-1 LLC collateralized debt obligation transaction, according to a notice of proposed first supplemental indenture on Friday.

The original BMFS 2017-1/BNFS 2017-1 LLC offering included $2 million of class X senior secured floating-rate notes, $104.3 million of class A senior secured floating-rate notes, $3.3 million of class B deferrable mezzanine secured fixed-to-floating-rate notes, $13.3 million of class C deferrable mezzanine secured fixed-to-floating-rate notes, $9.5 million of class D deferrable subordinated secured fixed-to-floating-rate notes and $22.9 million of preferred shares.

The CDO was originally issued on Jan. 11, 2018.

The notes are collateralized by a portfolio of debt from U.S. community banks.

Buckhead One Financial Opportunities is an Atlanta-based asset management firm.

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