Wellfleet offers firm’s second CLO; market expects low-volume year; secondary activity up

By Cristal Cody

Eureka Springs, Ark., March 11 – Wellfleet Credit Partners, LLC joined the CLO deal pipeline with a $358.5 million transaction in the works.

New issue activity remains thin at only about 20% of the deal volume compared to a year ago, according to market sources.

Morgan Stanley & Co. LLC analysts said in a note they have reduced their 2016 CLO volume forecast to $40 billion to $45 billion from $50 billion to $60 billion. Morgan Stanley also lowered the amount of euro-denominated CLO issuance for the year to €10 billion from €15 billion.

The new issue machine has been “losing steam in both the U.S. and Europe,” the Morgan Stanley analysts said.

“The demand for new issue paper will likely give way to that for secondary paper,” the analysts said. “We think high-quality CLO secondary paper will benefit from the current risk-on sentiment in the broader credit market.”

Secondary market volume in February was $4.5 billion for investment-grade CLO securities compared to $4.2 billion in January, according to the note. Trace volume in February for below investment-grade CLO securities was $2.2 billion, up from $1.6 billion in January.

On Thursday, 45 investment-grade CBO/CDO/CLO issues totaling $155.12 million and 12 non-investment-grade CBO/CDO/CLO securities totaling $123.7 million were traded, according to Trace.

Wellfleet preps CLO

Wellfleet Credit Partners is in the pipeline with $358.5 million of notes due April 20, 2028 in a Rule 144A-eligible CLO deal, according to a market source.

The Wellfleet CLO 2016-1, Ltd./Wellfleet CLO 2016-1 LLC offering includes $2 million of class X floating-rate notes (//AAA); $227.5 million of class A floating-rate notes (//AAA); $38.5 million of class B floating-rate notes; $21 million of class C floating-rate notes; $17.5 million of class D floating-rate notes; $17.5 million of class E floating-rate notes and $34.5 million of subordinated notes.

Morgan Stanley & Co. LLC will arrange the offering.

The CLO will have a two-year non-call period and a four-year reinvestment period.

The deal is collateralized primarily by first-lien senior secured loans.

Proceeds from the offering will be used to purchase a $350 million portfolio of mostly senior secured leveraged loans.

The deal is the second CLO offering for Wellfleet Credit Partners, which previously priced the $360 million Wellfleet CLO 2015-1, LLC transaction on Aug. 28.

Greenwich, Conn.-based Wellfleet Credit Partners is a performing credit arm formed in 2015 by private investment firm Littlejohn & Co., LLC.

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