CLO primary market pace slower, spreads wider; $458.1 million TIAA CLO VI prices

By Rebecca Melvin

New York, Jan. 3 – The primary market for collateralized loan obligations has been slow since the beginning of December, with the tally for new issuance for that month a low $5.7 billion. But issuance for the year remained at a post-crisis high of $127 billion, according to Wells Fargo Securities’ CLO Monthly Market Overview, published on Thursday.

Market volatility and spread widening may have delayed some deals that would have otherwise priced in December, Wells Fargo analysts David Preston and Mackenzie Miller wrote in the report.

Meanwhile, secondary market action was brisk over the last month, with stable fundamentals and technicals described as moderate despite spreads that expanded to 12- to 18-month wides.

The same cannot be said about the U.S. leveraged loan market, which saw declining fundamentals and heavy outflows over the last month. Spreads for leveraged loans remain low at around levels comparable to those seen in the third quarter of 2016.

Given volatility that hit across credit markets, both primary and secondary markets were wider month over month. Since the start of November, primary AAA spreads have moved 11 basis points wider; primary AA spreads have moved 30 bps wider, while single-A through BB spreads have widened 85 bps to 10 bps. The single-A/AAA and BBB/AAA ratios have widened recently, back to levels not seen since January 2016.

Despite a slower primary market, secondary supply was fairly active in December, with $8.3 billion in Trace volume, which was double the $4 billion from the same month a year earlier, according to the Wells Fargo report.

Secondary spreads have widened slightly more than primary spreads since the beginning of November. Secondary single-As have widened the most since the beginning of November by about 85 bps, or 40%, according to the Wells Fargo overview.

Among recent new issues, the $458.1 million TIAA CLO VI Ltd./TIAA CLO VI LLC, a broadly syndicated CLO offering, priced, and among refinancings, the $640.5 million Symphony CLO XV Ltd. CLO of notes due Jan. 17, 2032 priced.

In the TIAA CLO VI Ltd./TIAA CLO VI LLC, there were $261 million of class A-1a senior secured floating-rate notes priced at Libor plus 123 bps; $28 million of class A-1b senior secured floating-rate notes priced at Libor plus 145 bps; $53 million of class A-2 senior secured fixed-rate notes priced at Libor plus 179 bps; $26.5 million of class B senior secured deferrable floating-rate notes priced at Libor plus 215 bps; $26.5 million of class C senior secured deferrable floating-rate notes priced at Libor plus 305 bps; and $15 million of class D secured deferrable floating-rate notes priced at Libor plus 595 bps and there was an equity tranche of $48.1 million of subordinated notes.

Citigroup Global Markets Inc. was the initial purchaser of the notes.

This was Teachers Advisors’ fourth CLO, bringing its total CLO assets under management to $1.8 billion.

Symphony Asset Management LLC sold $640.5 million of notes due Jan. 17, 2032 in a refinancing of the Symphony CLO XV Ltd. CLO transaction that originally priced in November 2014, according to a market source.

The CLO priced $6 million of X-R2 floating-rate notes at Libor plus 70 bps, $384 million of class A-R2 floating-rate notes at Libor plus 126 bps; $58 million of class B-1-R2 floating-rate notes at Libor plus 195 bps; $14 million of 4.808% class B-2-R2 fixed-rate notes; $36 million of class C-R2 floating-rate notes at Libor plus 260 bps, $34.5 million of class D-R2 floating-rate notes at Libor plus 400 bps, $25.5 million of class E-R2 floating-rate notes at Libor plus 633 bps, $12 million of class F-R2 floating-rate notes at Libor plus 868 bps and a $70.5 million tranche of subordinated notes.

BNP Paribas Securities Corp. arranged the transaction.

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