Global CLO Roundup: US CLO new-issue volume exceeds $40B

The CLO market closed out the busiest quarter on record on both sides of the Atlantic last week, with a flurry of refinancings and resets and a steady flow of new-issue deals to round off the quarter.

Year-to-date CLO new-issue volume, through April 2:

* U.S. — $40.12 billion from 83 deals, versus $18.35 billion from 36 deals in the same period in 2020.

* Europe — €7.81 billion from 20 deals, versus €5.83 billion from 14 deals in the same period in 2020.

* Global — $49.49 billion from 103 deals, versus $24.77 billion from 50 deals in the same period in 2020.

US

As the U.S. CLO market emerges from the most active quarter on record for CLO issuance, buoyed on the asset side by the busiest month for M&A and LBO issuance in the pandemic era, it is perhaps unsurprising to note that 18 of the 62 managers to feature in the market in 2021 have priced at least two new issue deals so far this year.

This compares to four managers pricing two or more deals during the same period last year — albeit during a quarter that was cut short by the onset of the pandemic — eight during the same period in 2019 and 11 during the same period in 2018, according to LCD data.

No manager has been more active on the new-issue front than Carlyle CLO Management, which last week priced its fourth deal of the year to date, namely the $467 million Carlyle US CLO 2021-4 via Goldman Sachs.

The manager's latest deal priced at a spread of 111 basis points over Libor across the bulk of the triple-A notes, with a weighted average cost of capital of 160.5 bps over Libor, according to LCD. By comparison, its first CLO of the year in early February printed with triple-As paying L+114 bps, the second at L+108 bps and the third at L+106 bps. All four deals priced with a two-year non-call and five-year reinvestment structure.

Elsewhere, Cerberus Business Finance priced its second transaction of the year, the mid-market $368 million Cerberus XXXII CLO, while Benefit Street Partners and Owl Rock Capital Advisors priced their first new-issue deals of 2021.

2019 CLOs dominate refis/resets

The lion's share of refinancings to price during the week ended April 2 were 2019 vintages, with triple-As pricing at a range of L+110-113 bps on those deals — all with three years of reinvestment period left to run — versus the L+133-142 bps triple-A coupons on the original 2019 prints.

According to LCD, Neuberger Berman and PGIM have now priced six refinancings or resets so far this year. Morgan Stanley on April 2 priced the $510.9 million reset of Neuberger Berman CLO XXI, an original 2016 vehicle that was last reset in 2018, for which the bulk of the triple-A notes now pay L+108 bps.

Dryden 49 Senior Loan Fund CLO for PGIM was refinanced in a Société Générale-led deal, with triple-A notes coming in at L+95 bps. The reinvestment period on that deal runs until July 2022.

Of the resets and refinancings to price last week, the reset of GoldenTree Loan Management US CLO 7 was of particular interest as it pertained to a deal that originally priced following the onset of the pandemic, in April 2020, and thus made a considerable difference to its cost of capital.

The reset, which increased the size of the rated notes to $478.25 million from $450.25 million, priced at a spread over Libor of 107 bps across the triple-A notes, versus 190 bps on the original deal, and priced with a two-year non-call and five-year reinvestment structure.

The EU-risk-retention-complaint vehicle includes a triple-A rated $163.75 million tranche structured as a loan.

Loan wave

New CLO creation is supported by a leveraged loan market that ended March with new-issue volume at a four-year high. A whopping $70.5 billion of institutional loan supply was launched during the month, the most since $78 billion was squeezed into January 2017.

Crucially for CLOs, it was also the busiest month for M&A and LBO issuance in the pandemic era, at $27.9 billion, the most since January 2020's $35.5 billion.

Issuance of deals supporting buyouts was particularly robust at $17.8 billion, a 30-month high. However, that is in no small part due to a couple of benchmark-sized term loans that launched last week for take-private buyouts of CoreLogic ($4 billion) and The Michaels Cos. ($1.8 billion).

Europe

With the late additions of the €405.6 million Cairn CLO XIII and the €408.35 million AlbaCore Euro CLO II, the first quarter of 2021 closed with new-issue CLO volume of €7.8 billion from 20 deals, surpassing the €7.4 billion of new-issue volume recorded in the fourth quarter of 2020 from 22 transactions, according to LCD.

Cairn Loan Investments and AlbaCore Capital also became the latest European CLO managers to price a vehicle with triple-A CLO exposure structured as a loan. Cairn's deal, arranged by Jefferies, included loan tranches sized at €125 million and €50 million, the former of which can be converted into notes after closing, while AlbaCore's transaction — led by Barclays — included a €155 million A-1 loan tranche.

In addition, the reset of Dryden 46 Euro CLO 2016 for PGIM, which priced last week, was also structured to include class A debt that may be in loan format.

While this feature is more commonly seen in the U.S., whether it is here to stay in the European market is up for debate, with some market participants who have spoken to LCD expecting it to become a permanent feature in the market and others who believe it will remain a structuring tool for a select few investors who receive better capital treatment for holding exposure in a loan format.

Nevertheless, their usage has certainly grown since first emerging in February. Loan notes have now featured on 11 deals — split between six new issues and five resets — with at least two investors now understood to be taking down these tranches at present.

Triple-A pricing on new-issue deals continues to hover around the E+80 bps mark or above, as evidenced in the Cairn deal, which came in at E+80 bps, with pricing further down the stack coming in at spreads over Euribor of 160/225/340/640/905 bps from the double-As to single-Bs on a discount margin basis. This equates to a WACC of E+170 bps on a coupon-only basis.

AlbaCore Capital's deal came in slightly wider at the top of the stack, at E+83 bps, and also featured a class of triple-A rated A-2 notes, priced at E+100 bps, issued with a 2.2% cap on Euribor. Pricing came in at spreads over Euribor of 165/250/378/640/920 bps from the double-As to single-Bs, for a WACC of E+176.35 bps.

Including these latest deals, Barclays ranks as the most active manager of the quarter for new issues by far, with eight deals pricing, and Jefferies is in second place with three deals.

Refis and resets

Market participants note that the new-issue pipeline looks lighter than earlier in the year, while those new-issue deals that do come to the market early in the second quarter are expected to remain limited to the more highly ramped portfolios, with one arranger that spoke to LCD last week speaking of two or three deals in their pipeline that were "pretty well-ramped" and almost ready to go.

As such, activity into the second quarter is expected to remain dominated by resets and refinancings, with a number of these transactions currently being shown to investors.

Two such deals are resets for Fair Oaks Loan Funding I and Hayfin Emerald CLO II (both 2019 vintages), which are both guided at spreads over Euribor of 80-82 bps at the top of the stack, slightly wider than the E+79 bps tight observed over the past few weeks.

Marketed by Morgan Stanley, Fair Oaks is resetting its debut European CLO, for which the bulk of the triple-A notes currently pay E+96 bps, in a deal that will increase the target par of the vehicle to €350 million, while the Hayfin Emerald Management deal, marketed by Goldman Sachs, will reduce the triple-A spread on the vehicle from 116 bps currently.

A total of two resets and two refinancings priced during the week ended April 2.

The resets of Avoca CLO XIII for KKR Credit Advisors and Dryden 46 Euro CLO 2016 for PGIM Loan Originator Manager both priced at spreads of 82 bps across the triple-As. As for the refinancings, Bain Capital Euro CLO 2018-2, for which the reinvestment period runs off in January 2023, came in at E+74 bps, while the triple-As on Madison Park Euro Funding XIII for CSAM priced at E+75 bps for a reinvestment period ending October 2023.

Again, these spreads — although historically tight — represent a slight widening from the current market tights set around the end of February.

LCD counted at least five new additions to the potential reset and refinancing pipeline last week, based on notices filed on Euronext Dublin. Three such notices were for 2019 vintages, while two were for deals that priced in 2020.

Of those, Guggenheim Partners Europe became the latest manager to flag the potential reset or refinancing of a post pandemic deal, the €281.65 million Bilbao CLO III, which originally priced in May 2020 at a spread of 144.4 bps across the triple-A notes with a weighted average cost of capital of E+229.56 bps, according to LCD.