TPG prices $1.23 billion CRE CLO; THL refinances AAA notes; mezzanine spreads move out

By Cristal Cody

Tupelo, Miss., Oct. 11 – TPG RE Finance Trust, Inc. priced a new $1.23 billion commercial real estate CLO transaction on Thursday.

The CRE CLO market has $14 billion of issuance year to date and a 2019 forecast of about $19.3 billion of volume, Kroll Bond Rating Agency said in a report on Friday following an industry CRE CLO conference in the previous session.

Kroll said the key conference takeaways were after “three years of substantial growth, the majority of participants predicted the industry will continue to grow in 2020, albeit more modestly.”

In other supply, THL Credit Advisors LLC repriced $390 million of AAA-rated notes from a vintage 2017 broadly syndicated CLO.

Elsewhere, leveraged loan funds saw redemptions totaling $711 million for the week ending Oct. 9, the highest weekly total since the $864 million of outflows posted in the week ending Aug. 21, Fitch Ratings said in a note on Friday.

“The first two weeks in October have seen a higher total, at $1.29 billion of outflows, than the entire month of September with only $916 million in redemptions, which includes the week ending Sept. 18 with $24 million of inflows,” Fitch said.

Year-to-date net leveraged loan flows stand at $25.1 billion of outflows.

Meanwhile, CLO AAA spreads have been steady, but mezzanine spreads have widened in the primary and secondary markets.

“Single-A to AAA spreads have been a port in the storm; primary spreads are still close to the levels of late August,” Wells Fargo Securities LLC analysts Dave Preston and Powell Eddins said in a note on Friday.

Lower mezzanine spreads “widened this week, as investors focused on declining market value coverage ratios and increased tail risk in CLO portfolios,” the analysts said.

New issue broadly syndicated CLO AAA tranches priced on average this week at Libor plus 133 basis points and at Libor plus 114 bps in the refinancing market.

CRE CLO AAA-rated tranches have priced at Libor plus 115 bps on average, according to the note.

Lower down the stack, benchmark CLO BB spreads have widened 40 bps to 50 bps since mid-September to the current 750 bps range with manager tiering more pronounced.

“BB spreads are now the widest since year-end 2016 – and, more notably, only 40-50 bps from the levels of October and November 2015,” Preston and Eddins said.

BB spreads finished 2015 in the Libor plus 800 bps to 825 bps range, according to the report.

“We don’t see much appetite for BB’s or weaker BBB’s, given a limited runway to year-end, in a year in which returns on lower mezzanine tranches are already low, and market value metrics look likely to continue to decline,” the analysts said.

In the secondary market, CLO AAA spreads were flat on the week at Libor plus 120 bps on average, while BB tranches traded on average 30 bps wider at the Libor plus 750 bps area, according to the note.

TPG RE Finance sells CLO

TPG RE Finance Trust priced $1.23 billion of notes and preferred shares in the CRE CLO transaction on Thursday, according to a market source and a news release.

TRTX 2019-FL3 Issuer, Ltd./TRTX 2019-FL3 Issuer, LLC priced with a weighted average interest rate of Libor plus 144 bps.

J.P. Morgan Securities LLC, Goldman Sachs & Co., LLC, Morgan Stanley & Co. LLC and Wells Fargo Securities, LLC were the bookrunners.

TPG RE Finance Trust Management, LP will manage the CRE CLO.

The deal is the manager’s first CRE CLO offering priced this year.

The San Francisco-based commercial real estate finance company is externally managed by TPG RE Finance Trust Management, LP, a part of TPG Real Estate, which is the real estate investment platform of alternative investment firm TPG Global, LLC.

THL refinances $390 million

THL Credit Advisors refinanced $390 million of notes from the vintage THL Credit Wind River 2017-1 CLO Ltd./THL Credit Wind River 2017-1 LLC transaction, according to a market source and a notice of revised proposed first supplemental indenture and notice of proposed second supplemental indenture on Thursday.

The CLO sold $390 million of class A-R senior secured floating-rate notes at Libor plus 114 bps.

BofA Securities, Inc. was the refinancing placement agent.

In the original transaction issued March 16, 2017, the CLO had priced $390 million of class A senior secured floating-rate notes at Libor plus 134 bps.

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

THL Credit Advisors is an alternative credit investment firm based in Boston.

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