New Aimco CLO prices; refinancings continue; March brings return of volatility

By Rebecca Melvin

New York, March 5 – Allstate Investment Management Co. priced $409.5 million of notes on Monday in a new collateralized loan obligation, and refinancings continued amid a pickup in volatility.

Aimco CLO, Series 2018-A/Aimco CLO, Series 2018-A LLC sold $3 million of class X senior secured floating-rate notes at Libor plus 55 basis points and $254 million of class A senior secured floating-rate notes at Libor plus 102 bps at the top of the capital stack. The notes mature April 17, 2031.

Morgan Stanley & Co. LLC arranged the deal.

March has seemingly ushered in a return of volatility, but CLOs and credit risk transfer were relatively strong performers in January and February, and CLOs should continue to enjoy relatively strong performance going forward.

CLOs performed well on both a total and excess return basis, and their solid credit fundamentals as well as market demand for floating-rate sectors, are expected to insulate the product from the worst of the turbulence.

CLO spreads are still relatively wide compared to other securitized products, and the products’ floating-rate nature means there is still investor demand even in the midst of the Federal Reserve rate hiking cycle.

Last week, three-month Libor rose above 2% for the first time since the financial crisis, in part due to the testimony of new Federal Reserve chairman Jerome Powell before Congress. The elevated rate is expected to drift slightly higher to year-end 2018, and the boost to CLO coupons should somewhat shelter the top part (AAA) of the capital stack from broader market volatility and could even support spread tightening, according to a market source. Nevertheless, the new rate and risky asset volatility means that a more cautious approach should be taken lower down the stack.

According to BofA Merrill Lynch Security Weekly, there is still value in sectors such as BB and B CLOs, and they are considered likely to deliver the best total and excess returns in securitized products in 2018.

But given market dynamics currently, a move higher and “a steady shift up in quality now is warranted. Buying protection with IG and HY CDX, or CMBX, likely makes sense, as March could see a return of volatility,” according to the BofA Merrill Lynch weekly publication published on Friday.

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