Oak Hill sells $518.5 million CLO wider than May deal; Saratoga distributions trimmed

By Cristal Cody

Tupelo, Miss., Oct. 16 - Oak Hill Advisors, LP's new $518.5 million collateralized loan obligation offering of notes due Oct. 29, 2025 priced with spreads wider than the CLO manager's deal brought in the spring, according to market sources.

At the top of the structure, OHA Credit Partners IX, Ltd./OHA Credit Partners IX, Inc. sold $4 million of class X senior secured floating-rate notes (Aaa) at Libor plus 100 basis points; $304 million of class A-1 senior secured floating-rate notes (Aaa) at Libor plus 140 bps and $5 million of 3.13% class A-2 senior secured fixed-rate notes (Aaa) in the offering via Morgan Stanley & Co. LLC.

The CLO also sold $31.5 million of class B-1 senior secured floating-rate notes at Libor plus 180 bps; $18.5 million of 3.96% class B-2 senior secured fixed-rate notes; $45.25 million of class C mezzanine secured deferrable floating-rate notes at Libor plus 350 bps; $34 million of class D mezzanine secured deferrable floating-rate notes at Libor plus 360 bps; $22.25 million of class E junior secured deferrable floating-rate notes at Libor plus 500 bps and $54 million of subordinated notes.

In May, the investment management firm closed on the $415 million OHA Credit Partners VIII, Ltd./OHA Credit Partners VIII, Inc. CLO offering of notes due April 2025.

The VIII CLO priced $244 million of class A senior secured floating-rate notes (Aaa) at Libor plus 112 bps; $57 million of class B senior secured floating-rate notes at Libor plus 165 bps; $29 million of class C mezzanine secured deferrable floating-rate notes at Libor plus 270 bps; $21.5 million of class D mezzanine secured deferrable floating-rate notes at Libor plus 350 bps; $18 million of class E junior secured deferrable floating-rate notes at Libor plus 440 bps; $9 million of class F junior secured deferrable floating-rate notes at Libor plus 550 bps and $36.5 million of subordinated notes.

Saratoga CLO set to close

Saratoga Investment Corp., which sold $314.9 million of notes in a CLO refinancing on Oct. 1, said in a news release that "as a result of increased pricing on the notes and the smaller asset base, interest income and equity distributions in the future will be lower than historical amounts but provide greater earnings stability during the next three to four years."

In the fiscal 2014 second-quarter earnings conference call on Wednesday, Saratoga Investment chief financial officer Richard Petrocelli said the firm expects the "interest income from the subordinated notes, as well as the distributions, to decline between 35% and 45% from their peak, but stabilize at that amount for at least the next three years."

CLO spreads have tightened compared to when the deal first priced in 2008, he said.

Saratoga Investment sold $314.9 million of notes due Oct. 20, 2023 in the Saratoga Investment Corp. CLO 2013-1, Ltd./Saratoga Investment Corp. CLO 2013-1, Inc. refinancing, which is expected to close on Thursday.

The CLO refinanced existing debt issued by GSC Investment Corp. CLO 2007, Ltd., which was renamed Saratoga Investment Corp. CLO 2013-1, Ltd.

The CLO priced $2.5 million of class X senior secured floating-rate notes (Aaa) at Libor plus 105 bps; $170 million of class A-1 senior secured floating-rate notes (Aaa) at Libor plus 130 bps; $20 million of class A-2 senior secured floating-rate notes (Aaa) at Libor plus 150 bps; $44.8 million of class B senior secured floating-rate notes at Libor plus 200 bps; $16 million of class C mezzanine deferrable floating-rate notes at Libor plus 290 bps; $14 million of class D mezzanine deferrable floating-rate notes at Libor plus 350 bps; $13.1 million of class E mezzanine deferrable floating-rate notes at Libor plus 450 bps; and $4.5 million of class F mezzanine deferrable floating-rate notes at Libor plus 575 bps; and $30 million of subordinated notes.

Saratoga Investment said it will continue to own all of the subordinated notes and receive a 50 bps management fee for the life of the Saratoga CLO.

The New York-based business development company provides financing for U.S. middle-market companies.

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