March ‘good month’ for CLOs; Valeant sparks concerns; BB, B notes active in secondary

By Cristal Cody

Eureka Springs, Ark., March 16 – March CLO primary action continues to show signs of waking with a new deal priced by Wellfleet Credit Partners, LLC.

Wellfleet Credit Partners sold $358.5 million of notes in the Wellfleet CLO 2016-1, Ltd./Wellfleet CLO 2016-1 LLC transaction via Morgan Stanley & Co. LLC. Final pricing details were not available by press time.

“March has been a good month so far for leveraged loans and CLOs as for other risk markets,” Deutsche Bank Securities Inc. analyst Bjarni Torfason said in a note released on Wednesday. “Since the bottom in late February, leveraged loans in CLOs have risen close to 2 points on average, and oil and gas loans have jumped by 4 points.”

Some buzz of concern surrounded CLO investments in Valeant Pharmaceuticals International Inc. on Wednesday. The company’s stock inched up 0.09% to $33.54 after losing more than 50% of its value on Tuesday following an announcement of lower earnings and revenue forecasts and a risk of breaching debt agreements.

“CLO trading activity of Valeant in the first two months of the year was largely within a tight range; the weighted-average buy price was $96.42, whereas the weighted-average sale price was $96.35,” according to a Wells Fargo Securities LLC report on Wednesday.

Standard & Poor’s placed the company on negative watch during the session.

“Given delays in reporting its 10-K, the company will likely violate reporting covenants this month and the company has until the end of April to resolve the covenants in the credit agreement to avoid the risk of acceleration,” S&P said in a news release. “The company plans to pursue an amendment with bank debt lenders next week.”

Moody’s Investors Service downgraded Valeant’s term loan rating to Ba2 from Ba1 on Tuesday.

BB, B tranches active

CLO secondary market activity remains active so far this week.

“BB and BBB rated tranches dominated lists last week, and this week we have already seen good amounts of BB and single B rated tranches on lists, including a single large list on Tuesday,” Torfason said.

“Spreads in the secondary market have been grinding tighter, particularly at the BB level,” he said. “Across the mezzanine there is a gradual firming of levels but spreads have yet to move significantly tighter.”

CLO BB-rated notes were quoted in the 900 basis points to 1,300 bps area, while B spreads traded in the 1,900 bps area.

Trace reported that 22 high-grade CBO/CDO/CLO issues totaling $120.31 million and 19 non-investment-grade CBO/CDO/CLO securities totaling $50.23 million were traded on Tuesday.

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