CLO primary, reset markets busy; Octagon, MidOcean refinance CLOs; spreads soften

By Cristal Cody

Tupelo, Miss., June 18 – CLO primary and refinancing action remains strong with several managers in the primary market on Friday.

CLO managers including CIFC Asset Management LLC, Sound Point Capital Management LP, Palmer Square Capital Management LLC and Alcentra NY, LLC priced CLOs on Friday, according to a BofA Merrill Lynch report released Monday.

Final pricing details were not immediately available.

In the refinancing space, Octagon Credit Investors, LLC priced $470 million of notes in a refinancing and reset of a 2016 CLO.

MidOcean Credit Fund Management LP sold $524.8 million of notes in a refinancing and reset of a vintage 2014 deal.

New issue spreads and secondary spreads have softened on the heavy refinancing pace, BofA Merrill Lynch analysts said in the note.

Several CLO managers are focusing on refinancing CLOs this year, according to first-quarter earnings calls highlighted in the BofA Merrill Lynch note.

CLO equity investor Eagle Point Credit Co. Inc. commented on its call “that it had a ‘robust pipeline of future resets under evaluation,’” according to the note.

Eagle Point also noted that the “potentially ‘radical’ savings associated with resetting wide-spread 2016 vintage deals means there is a ‘pretty high’ opportunity cost associated with waiting to call these deals, even if you think CLO spreads will tighten down the line,” the analysts said. “As we wrote last week, we think this significant cost saving, as well as compressed collateral quality test headrooms, will incentivize managers and equity holders of callable 2016 deals to reset sooner rather than later, even if it means doing so at slightly wider spreads.”

In new issue action on the calls, Carlyle Group LP commented that it is on course to issue about $4 billion of new CLOs in 2018, while Och-Ziff Capital Management Group said it has a robust CLO pipeline.

In addition, THL Credit Inc. said it is in the warehouse phase of an inaugural middle-market CLO and that a warehouse for a second middle-market CLO is coming online, according to the note.

In the secondary market, BWIC volume totaled $1.04 billion for the week and was focused on AAA and A tranches, according to the note. AAAs ended Friday on average 3 basis points wider on the week, while BB and B tranches were 15 bps weaker.

“There was also decent supply of shorter duration cashflows on BWIC lists this week,” the BofA Merrill Lynch analysts said. “Among the bonds on BWIC lists that we had color on, $303 [million] were shorter duration AAAs with a WAL to maturity of less than 3 years. This suggests to us that a portion of the selling was accounts exiting positions to rotate into new issue deals and resets offering wider spreads.”

Octagon resets 26 CLO

Octagon Credit Investors priced $470 million of notes in a refinancing and reset of the Octagon Investment Partners 26, Ltd./Octagon Investment Partners 26, LLC transaction, according to a notice of executed first supplemental indenture on Friday.

The CLO sold $302.5 million of class A-1-R senior secured floating-rate notes at Libor plus 102 bps at the top of the capital stack.

Morgan Stanley & Co. LLC arranged the offering.

The maturity on the notes was extended to July 15, 2030 from the original April 15, 2027 maturity. The reset CLO also has an extended two-year non-call period and a five-year reinvestment period.

In the original $509.1 million transaction issued April 27, 2016, the CLO sold $310 million of the class A senior secured floating-rate notes at Libor plus 158 bps.

Proceeds were used to redeem the original notes.

Octagon Credit Investors has priced three new CLOs and refinanced two vintage CLOs year to date.

In 2017, the CLO manager brought four new CLOs to the primary market.

The New York-based credit investment firm is a subsidiary of Conning & Co.

MidOcean resets 2014 CLO

MidOcean Credit Fund Management priced $524.8 million of notes in a refinancing and reset of the MidOcean Credit CLO III/MidOcean Credit CLO III LLC deal, according to a market source and a notice of revised proposed second supplemental indenture on Friday.

MidOcean Credit CLO III priced the $208 million of class A1-R floating-rate notes at Libor plus 112 bps.

MUFG was the refinancing placement agent.

The maturity on the notes was extended to April 21, 2031 from the July 21, 2026 maturity. The reset CLO has an extended two-year non-call period and five-year reinvestment period.

The $518 million CLO originally was issued on July 22, 2014. In that transaction, MidOcean priced $312.5 million of class A floating-rate notes at Libor plus 146 bps.

Proceeds will be used to redeem the original notes.

The affiliate of New York City-based private equity firm MidOcean Partners priced one new CLO and refinanced one CLO transaction in 2017.

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