Pricing emerges on European CLOs; volatility, loan pricing dispersion to continue

By Rebecca Melvin

New York, Jan. 25 – Pricing emerged on Friday for three euro-denominated collateralized loan obligations, representing catch up for the European primary market, which had a delayed start in 2019.

The €513 million Crosthwaite Park CLO DAC transaction priced with notes due March 2032. The cash flow CLO is comprised primarily of European senior secured obligations with a component of senior unsecured, second-lien loans, mezzanine and high-yield bonds.

Its manager, Blackstone/GSO Debt Funds Management Europe Ltd., has priced 19 euro-denominated CLOs. The notes at the top of the capital structure were €242 million of class A-1A floating-rate notes (Aaa) that priced at Euribor plus 108 basis points – somewhat wider than the last euro CLO Blackstone/GSO priced in 2018. It also priced €10 million of class A-1B floating-rate notes (Aaa) at Euribor plus 140 bps, €30 million of class A-2A floating-rate notes (Aa2) at Euribor plus 185 bps and €22.5 million of 2.5% class A-2B fixed-rate notes (Aa2).

CELF Advisors LLP priced €409.1 million of fixed- and floating-rate notes due March 2032 in the Carlyle Global Market Strategies Euro CLO 2019-1 DAC, with a top tranche of €2.5 million of class X senior secured floating-rate notes (Aaa) that priced at Euribor plus 65 bps, and €240 million of class A-1 senior secured floating-rate notes (Aaa) that priced at Euribor plus 110 bps, nearly the same as Crosthwaite’s A-1A class tranche that priced a Euribor plus 108 bps.

The Carlyle euro 2019-1 CLO also priced €36 million of class A-2A senior secured floating-rate notes (Aa2) at Euribor plus 210 bps and €10 million of 3.1% class A-2B senior secured fixed-rate notes (Aa2).

Net proceeds will be used to purchase a €400 million portfolio of mainly euro-denominated leveraged loans.

Also, Guggenheim Partners Europe Ltd. sold €411.9 million of notes due October 2032 in the new Bilbao CLO II DAC transaction, according to a market source on Friday.

The CLO sold €2 million of class X senior secured floating-rate notes (Aaa) at Euribor plus 55 bps, €234 million of class A-1A senior secured floating-rate notes (Aaa) at Euribor plus 114 bps, €15 million of 1.6% class A-1B senior secured fixed-rate notes (Aaa), €27 million of class A-2A senior secured floating-rate notes (Aa2) at Euribor plus 195 bps, and €5 million of 2.05% class A-2B senior secured fixed-rate notes.

Credit Suisse Asset Management Ltd. also priced this past week what appears to have been the first euro market CLO, with a €407.4 million of notes due Jan. 15, 2032 in the Cadogan Square CLO XIII DAC deal. It included €1.5 million of class X floating-rate notes (Aaa/AAA) priced to yield Euribor plus 50 bps and €246 million of class A floating-rate notes (Aaa/AAA) at Euribor plus 100 bps.

Market outlook

Wells Fargo’s Dave Preston and Mackenzie Miller wrote in a note published in mid-January that it was a whole new world in CLOs after a grim close to 2018 in November and December.

“The steady price decline” of that period quickly reversed as loans and CLOs posted rapid rallies. “In a wider-spread, higher-vol. loan market, CLO managers’ trading strategies become increasingly important,” Preston and Miller wrote.

The analysts said they expect sub-par loan pricing and volatility to continue for the rest of 2019, as liquidity conditions are tighter and corporates face risks ranging from over-leveraged balance sheets to trade tensions and margin pressures.

In the 2018 fourth quarter, the space was active and different CLO trading strategies meant that “outcomes in terms of risk management and par building” were different. “We expect loan pricing dispersion and volatility to continue in 2019, as the economic and corporate sector outlooks remain uncertain and loan pricing remains further away from peak negative convexity,” Preston and Miller wrote in a note published Jan. 14.

CLO managers’ secondary loan market activity will be increasingly important and differentiating.

Meanwhile, Fitch Ratings predicts another year of low defaults, which will also affect investor behavior that is of a late cycle nature apparent from loan documentation and demand-driven financing and lower-rated leveraged loan issuers,” Fitch managing director Kevin Kendra wrote in a recent Fitch Ratings note.

© 2015 Prospect News.
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