CLOs quiet ahead of FOMC; CIFC sells $418 million; Prospect Capital invests in equity

By Cristal Cody

Tupelo, Miss., Sept. 11 - CLO primary and secondary market activity should pick after a slow start to the month with some deals potentially holding off until after the Federal Open Market Committee meets in the week ahead, according to a market source on Wednesday.

"There's definitely some caution on the investment side as we move into the FOMC, but given the weak housing numbers we saw recently and employment, people may be looking at the likelihood of a tapering announcement in December," the source said. "That's alleviated some of the near-term concerns people may have had."

CLO primary activity has stayed quiet over the week, but about five to 10 new transactions are in the near-term pipeline, according to an informed source.

"We are seeing some pick-up on the primary side," the source said. "The secondary market started off relatively slow just because of the holidays. Volume has been pretty light the first two weeks."

New CLO spreads remain mostly unchanged from August with recent AAA-rated tranches priced in the Libor plus 130 basis points to 135 bps area for top tier managers, according to market sources.

Lower-tier CLO managers are bringing AAA-rated slices in the range of Libor plus 140 bps to 160 bps.

CIFC Asset Management LLC raised $418 million in the CIFC Funding 2013-III, Ltd./CIFC Funding 2013-III LLC CLO, which included a $119 million tranche of class A-1A senior secured floating-rate notes (/AAA/) priced at Libor plus 133 bps, according to informed sources.

The CLO is set to close on Thursday and also priced $125 million of class A-1B senior secured floating-rate notes (/AAA/) at Libor plus 110 bps, which step up to Libor plus 160 bps in April 2015 and Libor plus 185 bps in April 2016; $21 million of class A-2A senior secured floating-rate notes (/AA/) at Libor plus 185 bps; $33 million of 4.051% class A-2B senior secured fixed-rate notes (/AA/); $30 million of class B deferrable floating-rate notes (/A/) at Libor plus 265 bps; $23 million of class C deferrable floating-rate notes (/BBB/) at Libor plus 325 bps; $18 million of class D deferrable floating-rate notes (/BB/) at Libor plus 475 bps; and $49 million of subordinated notes.

Prospect Capital takes stake

Prospect Capital Corp. reported that the New York-based investment firm is the majority investor in CIFC Funding 2013-III's $49 million tranche of subordinated notes.

Prospect Capital, which invests primarily in first-lien and second-lien senior loans and mezzanine debt, reported in its Aug. 21 fourth quarter financial results for the quarter and fiscal year ended June 30 that it invested $44.1 million on Aug. 2 to purchase 90% of the subordinated notes in the CIFC Funding 2013-III CLO.

The firm also invested $26.5 million to purchase 84% of the subordinated notes in the LCM XIV CLO Ltd. deal on June 25.

In addition, Prospect Capital said that on April 17, it made an investment of $43.7 million to purchase 97% of the subordinated notes in the Mountain View CLO 2013-I Ltd. transaction and invested $26 million to purchase 51% of the subordinated notes in the Brookside Mill CLO Ltd. offering on April 25.

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