Sound Point Capital refinances; CLO refinancing space active; middle-market supply eyed

By Cristal Cody

Tupelo, Miss., Sept. 28 – CLO refinancing action is expected to remain active over the near term.

Sound Point Capital Management LP refinanced $21.1 million of fixed-rate notes from a vintage 2018 CLO.

The manager has partially refinanced two CLOs in September.

More than $28 billion of vintage CLOs have been refinanced, while about $55 billion of new CLOs have priced year to date, according to market sources.

“We count a total of 30 fixed-rate tranche refis to date and estimate another 22 deals with fixed-rate tranches where managers/equity holders can realize at least 10 [basis points] of cost reduction if they refi those particular bonds,” BofA Securities, Inc. analysts said in a research note released on Monday.

“As swap rates have rallied by 136 bps since the beginning of the year, we continue to see fixed-rate tranche refis on the rise,” the analysts note.

Fixed-rate tranche yields are lower by 104 bps compared to the end of 2019 despite higher spreads, according to the report.

“As a result, managers/equity holders are opting to refi outstanding fixed-rate IG bonds,” the BofA analysts said.

Meanwhile, the CLO middle market may see additional new issuance over the last part of the year.

Middle-market investors and managers remain optimistic as the amount of credit ratings downgrades due to Covid-19 have been lower than expected, according to a middle-market CLO investor day hosted by Wells Fargo Securities LLC on Thursday.

“Across the board, managers highlighted an uptick in MML issuance beginning in August and that pipelines continue to increase going into Q4 as sponsors have dry powder to put to work,” the Wells Fargo analysts said in a note on Monday. “We also expect to see more new issue MM CLOs from select managers.”

New middle-market CLO spreads have been generally 75 bps to 100 bps wider than pre-Covid-19 levels, according to the note.

CLO middle-market supply totals more than $5.5 billion year to date.

Sound Point reprices

Sound Point Capital Management refinanced $21.1 million of notes due Jan. 20, 2031 from the vintage 2018 Sound Point CLO XVIII, Ltd./Sound Point CLO XVIII, Inc. transaction, according to market sources.

The CLO priced $21.1 million of 2.37% class A-2B-R senior secured fixed-rate notes (expected ratings Aa2).

In the original deal issued Jan. 23, 2018, the CLO had priced $21.1 million of 3.74% class A-2-B fixed-rate notes.

Goldman Sachs & Co. LLC was the refinancing agent.

The CLO is collateralized primarily by broadly syndicated first-lien senior secured corporate loans.

Sound Point Capital has priced two new dollar-denominated CLOs, one new euro-denominated CLO and two partial CLO refinancings year to date.

The asset management firm is based in New York.

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