Jefferies upsizes; CLO pipeline hits $14.8 billion; issuance slows on Volcker clarity wait

By Cristal Cody

Tupelo, Miss., Feb. 14 - Issuance in the collateralized loan obligation market reached $5.7 billion on new deals brought over the week, but the supply remains below the more than $9 billion priced in January 2013 alone, market sources said on Friday.

Jefferies Finance LLC brought a $522.2 million CLO transaction, according to an informed source. The JFIN CLO 2014 Ltd./JFIN CLO 2014 LLC vehicle sold the $304.5 million AAA tranche at Libor plus 150 basis points.

Neuberger Berman Fixed Income LLC tapped the market on Tuesday with the $572 million Neuberger Berman CLO XVI, Ltd./Neuberger Berman CLO XVI, LLC transaction. The $275.5 million AAA slice priced at Libor plus 147 bps.

Los Angeles-based Tennenbaum Capital Partners LLC also priced a $277.75 million CLO on Thursday via Natixis Securities Americas LLC, a source said. Final pricing information was not available by press time.

About 33 broadly syndicated and middle-market CLO deals valued at $14.8 billion are in the pipeline, according to a market source on Friday.

Looking ahead, Pasadena, Calif.-based Western Asset Management Co. plans to place a $400 million CLO deal via Deutsche Bank Securities Inc. later in the month, an informed source said. The AAA-rated slice of the Mountain Hawk III CLO, Ltd. deal is talked to price at Libor plus 155 bps.

The slower issuance is attributed to the December announcement of the Volcker Rule, which prohibits banks from owning CLOs that hold bonds, market sources said. The market continues to press for clarity from regulators, and several analysts have lowered their CLO annual issuance forecasts.

J.P. Morgan Securities plc analysts lowered their 2014 U.S. CLO issuance forecast of $60 billion to $70 billion.

"In a no-Volcker-clarification downside case, we assume U.S. bank AAA CLO demand could drop by 80%, holding back the demand-side of CLO formation," according to a JPMorgan report released on Friday. "We believe that real money and insurance demand will rise to an extent as spreads remain wide, but these investors are a much smaller part of the CLO AAA investor base to begin with. As a result, 2014 supply could decline to $38 billion."

Jefferies Finance taps market

Jefferies Finance upsized the $522.2 million CLO from $408.95 million, a source said.

The CLO sold $304.5 million of class A senior secured floating-rate notes (Aaa/AAA/) at Libor plus 150 bps; $48.25 million of class B-1 senior secured floating-rate notes (/AA/) at Libor plus 200 bps and $5 million of 4.16% class B-2 senior secured fixed-rate notes (/AA/) at the top of the capital structure.

The CLO also priced $51.5 million of class C mezzanine secured deferrable floating-rate notes (/A/) at Libor plus 300 bps; $29 million of class D mezzanine secured deferrable floating-rate notes (/BBB/) at Libor plus 365 bps; $23.75 million of class E mezzanine secured deferrable floating-rate notes (/BB/) at Libor plus 500 bps; $10 million of class F mezzanine secured deferrable floating-rate notes (/B/) at Libor plus 550 bps and $50.2 million of subordinated notes.

BNP Paribas Securities Corp. was the lead placement agent. Jefferies LLC was the co-arranger.

Jefferies Finance will manage the CLO, which is backed by a revolving pool of broadly syndicated senior secured corporate loans.

The notes are due in 2025.

Jefferies Finance was last in the market in March 2013 with the $461.53 million JFIN CLO 2013 Ltd./JFIN CLO 2013 LLC transaction.

New York City-based Jefferies Finance is a commercial finance company co-owned by Jefferies Group LLC and Massachusetts Mutual Life Insurance Co.

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