Octagon prices $496.85 million CLO; BlackRock brings $397.7 million; CLO AAAs tighten

By Cristal Cody

Tupelo, Miss., May 26 – In CLO primary action, Octagon Credit Investors, LLC priced $496.85 million of notes in the manager’s first new broadly syndicated deal this year.

Also, BlackRock Financial Management, Inc. sold $397.7 million of notes in its first CLO offering of 2020.

New issue volume has picked up in May following the March slowdown with more than $24 billion of broadly syndicated and static CLOs priced year to date, while the refinancing space remains quiet, according to a BofA Securities, Inc. research note released on Tuesday.

About $25 billion of vintage CLOs have been refinanced so far this year “with no refi/reset/reissues during April and May so far,” the BofA analysts said.

Secondary volume was strong leading into the Memorial Day holiday with investment-grade CBO/CDO/CLO paper trading in the 94-95.50 area last week, according to Trace data.

BWIC volume totaled about $1 billion with CLO AAAs accounting for 41% of the total on bid lists, the BofA Securities report said.

CLO AAA-A spreads tightened 10 basis points to 15 bps, while BBB-BB tranches firmed 25 bps to 50 bps over the past week.

“Spreads tightened across the capital stack with the exception of CLO Bs,” the BofA analysts said.

AAA tranches were quoted ending the week 10 bps tighter at Libor plus 180 bps, while BB tranches came in 50 bps to Libor plus 1,125 bps on average.

B-rated CLO spreads were flat on the week at an average Libor plus 1,550 bps.

In the primary market, AAA and A spreads are tight, while AA spreads are marginally weaker and BBB spreads stand out as wide to AAA tranches, according to a Wells Fargo Securities LLC note on Tuesday.

“Today’s ratio of BBB spreads to AAA spreads (3.1x) is wider than the average ratios of 2019, 2018-2019 and 2015-2016,” the Wells Fargo analysts said. “BBB spreads are the widest relative to AAA’s since H1 2016.”

Compared to investment-grade corporate spreads, CLO AAAs are “quite tight,” the Wells Fargo report said.

“Historically, CLO AAA’s have been wide of IG corporate spreads, by roughly 10%; but currently, CLO AAA spreads are inside of IG spreads,” the analysts said. “Down the stack, we see that, relative to IG, single-A and BBB CLO spreads are also well tight of the historical ratio. CLO BBB spreads are also closer to the average ratio with high yield spreads.”

Tiering in CLO lower mezzanine tranches “has certainly widened,” with higher quality BBB’s in the low 90 range, according to the note.

Elsewhere on Tuesday, Fitch Ratings placed numerous European CLO tranches, including notes from BlueMountain Fuji EUR CLO IV DAC and BNPP AM Euro CLO 2019 BV, on negative watch.

Octagon sells 47 CLO

Octagon Credit Investors priced $496.85 million of notes due April 20, 2031 in the Octagon Investment Partners 47, Ltd./Octagon Investment Partners 47, LLC broadly syndicated collateralized loan obligation offering, according to market sources.

The CLO sold $300 million of class A-1 notes at Libor plus 185 bps at the top of the capital stack.

Wells Fargo Securities LLC was the placement agent.

The offering is backed primarily by broadly syndicated first-lien senior secured loans.

Octagon Credit Investors is a New York-based credit investment firm that is majority owned by Conning & Co.

BlackRock prints Magnetite

BlackRock Financial Management sold $397.7 million of notes due July 15, 2030 in the manager’s first CLO offering of 2020, according to market sources.

Magnetite XXVI, Ltd./Magnetite XXVI LLC priced $256 million of class A floating-rate notes at Libor plus 175 bps in the AAA-rated tranche.

Goldman Sachs & Co. LLC was the placement agent.

The offering is collateralized primarily by broadly syndicated first-lien senior secured loans.

BlackRock is an investment management firm based in New York City.

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