Monroe Capital wraps its first middle-market CLO of year; spreads widen on ‘heavy selling’

By Cristal Cody

Tupelo, Miss., June 10 – Monroe Capital LLC priced $456.34 million of notes at par in its first middle-market CLO offering of the year.

The deal marks the manager’s third CLO completed in the last 15 months, the company said in a news release on Monday.

“Our middle-market CLO business remains a critical component to the broader Monroe platform,” Jeremy VanDerMeid, portfolio manager of Monroe, said in the release. “We continue to see strong demand from investors around the world as our middle-market CLOs offer investors a unique entry point to access the U.S. middle market.”

Middle-market CLO volume year to date totals more than $6 billion, compared to $14 billion priced in all of 2018, according to a BofA Merrill Lynch global research note released on Monday.

Meanwhile, BofA Merrill Lynch analysts reported they have turned “more cautious on U.S. CLO spreads.”

Broadly syndicated CLO spreads ended the past week “meaningfully” wider across the capital structure “on extremely heavy selling in the secondary market, especially at the AAA level,” the analysts said in the report.

Weekly BWIC volume totaled almost $2.1 billion – the highest weekly volume on record for 2.0/3.0 CLOs, the analysts said.

CLO AAA-rated spreads were quoted ending Friday in the secondary market 5 basis points wider on the week at the Libor plus 117 bps area.

Spreads in the CLO primary market are expected to be “stickier” than in the secondary market, at least for investment-grade tranches, according to the report.

“Liability spreads in the new issue market have lagged the moves tighter seen in the CLO secondary market and other credit markets this year,” the analysts said. “This, combined with a relatively light forward issuance pipeline, should moderately anchor spreads for IG tranches.”

Monroe Capital brings $456.34 million

Monroe Capital priced $456.34 million of notes due May 22, 2031 at par in a middle-market CLO transaction that closed on Friday, according to market sources and a news release on Monday.

Monroe Capital MML CLO VIII, Ltd./Monroe Capital MML CLO VIII, LLC sold $252 million of class A senior floating-rate notes at Libor plus 170 bps in the senior tranche.

Deutsche Bank Securities Inc. was the bookrunner.

Monroe Capital affiliate Monroe Capital Asset Management LLC will manage the CLO.

The CLO is secured primarily by small and medium enterprise first-lien senior secured loans.

The Rule 144A and Regulation S transaction was structured to comply with European risk retention guidelines and U.S. risk retention guidelines.

The middle-market lender and private credit asset management firm is based in Chicago.

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