Fortress, Flagship price CLOs; secondary sees some mezzanine bids wanted in competition

By Rebecca Melvin

New York, Sept. 26 – Terms emerged Friday for two new collateralized loan obligations, including Fortress Investment Group LLC’s $600 million of notes due October 2026 and Deutsche Investment Management Americas Inc.’s $411.56 million of notes in Flagship due 2027, according to informed sources.

Fortress Credit Opportunities V CLO Ltd./Fortress Credit Opportunities V CLO LLC priced $86 million of class A-1R floating-rate revolving notes (/AAA/) at Libor plus 190 basis points, $82 million of class A-1T floating-rate notes (/AAA/) at Libor plus 190 bps and $90 million of class A-1F fixed-rate revolving notes (/AAA/) to yield 3.85% and $18 million of 4.4% class A-2 fixed-rate revolving notes (/AA/).

Fortress also priced $66 million of class B floating-rate notes (/AA/) at Libor plus 265 bps lower in the capital structure; as well as $48 million of floating-rate deferrable notes (/A/) at Libor plus 355 bps; $42 million of class D deferrable floating-rate notes (/BBB/) at Libor plus 450 bps; $18 million of class E deferrable floating-rate notes (/BBB/) at Libor plus 490 bps; $18 million of class F deferrable floating-rate notes (/BB/) at Libor plus 675 bps; and $132 million of subordinated notes in an equity tranche.

Flagship VIII Ltd./Flagship VIII LLC priced $251 million of class A senior secured floating-rate notes (Aaa/AAA/) at Libor plus 154 bps; $49.75 million of class B senior secured floating-rate notes (/AA/) at Libor plus 245 bps; $27.5 million of class C deferrable floating-rate notes (/A/) at Libor plus 300 bps; $20.75 million of class D deferrable floating-rate notes (/BBB/) at Libor plus 370 bps; $19 million of class E deferrable floating-rate notes (/BB-/) at Libor plus 520 bps; $7.25 million of class F deferrable floating-rate notes (/B/) at Libor plus 585 bps and $36.31 million of subordinated notes.

The secondary market was still quiet, a New York-based trader said. There were some mezzanine bid wanted in competition lists, “but nothing to indicate a trend yet, the trader said.

The CLO secondary market has been quiet all week, quieted by the annual ABS East conference in Miami early in the week, which kept market players away from their desks, and also by Rosh Hashana and the broader markets’ downturn late in the week.

For the year to date, secondary market action is down. U.S. BWIC volume is $14.6 billion for the year so far; and, while there are still a few months left in the year, it is already looking unlikely that secondary volume will approach the $22.41 billion of BWICs that traded in 2013, according to analysts at J.P. Morgan Securities LLC.

One reason for this is that many issues have amortized. JPMorgan said the estimated drop was by $38 billion in amortizing notes in 2014.

But in addition to the trend of less supply of legacy CLO paper given the amortization, there are other contributing factors including the booming primary market and all the focus that is there right now as well as regulation changes to bank capital regimes for dealers, JPMorgan said in a recent note.

Furthermore, the composition of BWIC activity is tilted toward pre-crisis CLOs even though the bulk of the market is composed of post-crisis CLOs, JPMorgan pointed out.

Pre-crisis CLOs make up only one-third of the market, but BWIC volume of 1.0 CLOs outstrips 2.0 CLOs by nearly 30%, the bank said.

AAA tranches are by far the largest segment of the BWIC market for the year to date, with $5.22 billion having traded, compared to $1.1 billion for AA, $1.65 billion for A, and $2.12 billion for BBB, according to JPMorgan.

Equities bounced back Friday from Thursday’s tumble but were still down for the week.

The Dow Jones industrial average gained 167.35 points, or 1%, to 17,113.15, the S&P 500 rose 16.86 points, or 0.9%, to 1,982.85, and the Nasdaq Composite added 45.45 points, or 1%, to 4,512.19.

For the week, the Dow fell 1%, the S&P lost 1.4% and the Nasdaq shed 1.5%.

Fortress prices CLO

Fortress Investment Group priced a $600 million CLO that was underwritten by Natixis Securities America LLC. The notes were fixed-, floating-rate and subordinated.

At the top of the deal structure was a tranche of $86 million of class A-1R floating-rate notes. They came at Libor plus 190 bps. The deal also included $82 million of class A-1T floating-rate notes at Libor plus 190 bps, $90 million of class A-1F 3.85% fixed-rate notes, and $18 million of class A-2 4.4% fixed-rate notes.

FCO V CLO CM LLC will manage the CLO and enter into a services agreement with Drawbridge Special Opportunities Advisors LLC, a subsidiary of Fortress Investment Group.

The deal is backed by senior secured middle-market corporate loans.

The CLO has a non-call period that ends Oct. 15, 2016 and a reinvestment period that ends Oct. 15, 2018.

The notes mature Oct. 15, 2026.

New York City-based Fortress Investment Group was in the market in April 2014 with the $800 million Fortress Credit Opportunities III CLO LP transaction.

Flagship VIII prices CLO

Deutsche Investment Management Americas priced a $411.56 million CLO. The deal included $251 million of class A senior secured floating-rate notes (Aaa/AAA/) at Libor plus 154 bps.

Deutsche Bank Securities Inc. arranged the transaction.

Deutsche Investment Management Americas will manage the deal.

The CLO matures January 2027 and has a non-callable period that ends in January 2016. The deal is expected to close in November.

The offering is backed by a pool of broadly syndicated senior secured loans.

Deutsche Investment Management Americas, part of Deutsche Bank AG, will manage the CLO. The firm last brought a deal in February when it sold the $441.82 million Flagship CLO VII transaction.

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