U.S. CLO primary pace slows; PineBridge on tap; CLO BB-rated secondary spreads tighten

By Cristal Cody

Tupelo, Miss., May 15 – CLO primary action continues to thin but remains active to date in May with the pipeline slowly filling, sources said.

“As sourcing attractively priced collateral for new deals has become more difficult, the torrid pace of CLO issuance from earlier in the year has slowed, with only $3 [billion] of CLOs pricing this month,” Barclays analysts said in a report on Friday.

CLO managers including Monroe Capital Management, LLC, Sankaty Advisors LLC and Anchorage Capital Group, LLC have tapped the market in May.

U.S. CLO issuance totals more than $46 billion year to date across 89 CLO deals, including new issues and refinancings, according to Prospect News data.

Coming up in the pipeline, PineBridge Investments LLC plans to return to the market for the first time since January with a $506 million offering of notes due June 30, 2027 in the Galaxy XX CLO Ltd./Galaxy XX CLO LLC transaction, a source said.

The deal includes $320 million of class A senior floating-rate notes (Aaa//AAA); $57.5 million of class B senior floating-rate notes (Aa2); $30 million of class C deferrable floating-rate notes (A2); $28.5 million of class D deferrable floating-rate notes (Baa3); $24.5 million of class E deferrable floating-rate notes (Ba3); $10 million of class F non-rated deferrable floating-rate notes and $35.5 million of non-rated subordinated notes.

Goldman Sachs & Co. is the placement agent.

PineBridge Investments was previously in the primary market on Jan. 29 with the $509.9 million Galaxy XIX CLO Ltd./Galaxy XIX CLO LLC transaction.

The New York City-based asset management firm brought two CLO deals in 2014.

CLO refinancing active

CLO refinancings are expected to be steady over the year as managers seek to comply with the Volcker Rule risk retention regulation, Barclays said.

“Ten deals have been refinanced in 2015, totaling $4 [billion] in debt, and an eleventh is set to price next week,” the analysts said in the note.

According to a Wells Fargo Securities, LLC report on Friday, the average cost of a CLO refinancing is 141 bps and the average benefit, measured as increased equity distributions, is 59 bps per payment, with an implied average break-even period of 2.4 payments.

Spreads tighten

In the U.S. secondary market, spreads headed out tighter on Friday.

“BB secondary spreads are now approaching 600 bps,” Wells Fargo Securities senior analyst Dave Preston and associate analyst Jason McNeilis said in a note. “However, [manager] tiering is quite pronounced; secondary levels on BB tranches can range from inside of 615 bps to more than 700 bps.”

BB-rated notes were quoted in the Libor plus 670 bps area in early April.

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