New CLO issuance in the year-to-date has surpassed $80 billion globally, which is already about half of the record $161 billion full-year figure in 2018, according to LCD data.
The final week of May featured a rush of issuance on both sides of the Atlantic, stirring a market in which new issue, reset and refinancing activity had cooled versus prior months.
Issuance in 2021, through May 28:
* U.S. — $66.12 billion from 137 deals, versus $27.73 billion from 60 deals in the same period in 2020.
* Europe — €12.48 billion from 31 deals, versus €7.69 billion from 21 deals in the same period in 2020.
* Global — $81.14 billion from 168 deals, versus $36.17 billion from 81 deals in the same period in 2020.
Eleven new issue deals cleared the market during the final week of May, the lion's share from those tapping the market for the first time this year, pushing new-issue volume to $66.12 billion from 82 unique managers.
Apex Credit Partners (a wholly owned subsidiary of Jefferies), AXA Investment Managers, Oaktree Capital Management, PGIM, PIMCO, Pretium Credit Management and Z Capital Credit Partners all priced their first new issue deals of the year in the week through May 28. Most had last printed in 2020.
Z Capital's deal was its first new issue CLO since 2019. The manager typically prints CLOs with high triple-C buckets, and the latest one allows for up to 30% of the portfolio to be invested in assets rated Caa1 and below. This is less than in its previous offering in June 2019, also arranged by Amherst Pierpont, which allowed for up to 50% to be rated CCC+/Caa1 and below. Z Capital's latest deal priced with a two-year non-call and four-year reinvestment structure, at L+169 basis points across the bulk of the triple-A notes.
The remaining managers to have priced their first new issue deal of 2021 did so at a range of L+110-121 bps across the triple-As, with weighted average costs of capital, or WACCs, ranging from 156-177 bps. The tightest of those was the $605.53 million Dryden 87 CLO for PGIM, which priced at the tight end of both ranges.
However, it was repeat issuer Blackstone that scooped the tightest triple-A spread since early April for a new issue U.S. CLO with a two-year non-call and five-year reinvestment period structure, in its sixth new issue CLO of the year.
The $457.33 million Point Au Roche Park CLO, via BNP Paribas, priced at L+108 bps across the triple-A notes and at spreads of 160/190/280/610 bps on the floating rate double-A to double-B notes for a WACC of 154.22 bps, according to LCD.
Blackstone's latest deal, which is EU risk retention compliant, is the tightest triple-A print for a CLO with a similar structure since Tallman Park CLO, another Blackstone vehicle, which priced April 9 at L+106 bps.
Behind Blackstone, Carlyle is the second most active U.S. manager on the new issue front, after pricing its fifth deal of 2021 last week. The $510.23 million Carlyle US CLO 2021-5 came in at L+112 bps across the upper-most rated notes, with a WACC of 161.28 bps, which is only marginally wider than its previous print in early April, which priced at L+111 bps and 160.50 bps, respectively, according to LCD.
2020 pandemic CLO takes refinancing route
Refinancing and reset activity cooled off in May, with refinancing volume falling to its lowest level of the year. May was also the second quietest month for resets.
Activity did pick up in the last week of the month, as eight resets cleared the market, spanning vehicles that either originally priced or were reset between 2017 and 2019. Included in that figure was the $708.5 million reset of the OHA Credit Funding 3 CLO for Oak Hill Advisors, the manager's fourth reset of the year, which is the most for any manager this year, according to LCD.
The original $707.5 million vehicle priced in May 2019, with a triple-A spread of 132 bps and a WACC of 176.53 bps. The reset, which priced at 114 bps across the triple-As, pushes the non-call and reinvestment periods out to July 2023 and July 2026, respectively.
While the shorter-dated vehicles that priced in the months following the onset of the pandemic have typically taken the reset route this year, the $406.4 million refinancing of Neuberger Berman CLO 37 stands as a notable exception.
The CLO originally priced in June 2020 with a one-year non-call and three-year reinvestment structure and a triple-A coupon of L+175 bps. The refinancing, which addresses all classes of notes, priced at L+97 bps across the triple-As, pushing out the non-call period to December 2021 and retaining its reinvestment period, which runs off in July 2023.
Loan supply drops
May was the slowest month for the leveraged loan new issue market so far this year. The $34.9 billion of institutional loan supply in May was a far cry from March's whopping $73.4 billion. While refinancing activity slowed, there were still pockets of opportunity and there is evidence of gathering optimism around the reopening of the economy as a host of issuers have stepped in to refinance with fresh ratings upgrades in hand.
Triple-A spreads widened in the last week of May, with both new-issue CLOs and resets pricing at spreads of 85 bps or more, while spreads on longer-dated refinancings also inched wider.
The €304.65 million Sculptor European CLO VIII for Sculptor Europe Loan Management became the first new issue European deal since early February to price with a triple-A spread north of 85 bps. The deal priced at E+88 bps across the upper-most rated notes, which included a sizeable loan portion, and priced at 160/210/310/645/925 bps on the floating rate double-As to single-Bs on a discount margin basis. The coupon-only WACC is 175 bps, according to LCD.
Partners Group and BNP Paribas Asset Management also both priced new-issue deals, with triple-A notes coming in at 85 bps.
Further down the stack, pricing on the €408.45 million Penta CLO 9 came in at 140/190/310/617/925 bps on the floating-rate double-A to single-B notes on a discount margin basis, while the WACC on a coupon-only basis was 169.77 bps.
The deal was notable for its two-year non-call and five-year reinvestment structure, ranking as the second-longest new-issue vehicle to price this year, after Sound Point Euro CLO V in March, which sported a 2.25-year and 5.25-year structure.
BNP Paribas Asset Management's first new issue deal since July 2019, the €408.9 million BNPP AM Euro CLO 2021, came in wider than Partners Group's offering across the investment-grade notes but tighter further down the stack, weighing in at spreads of 155/215/310/580/875 bps across the floating rate double-As to single-Bs, for a WACC of 170.19 bps, according to LCD.
On the reset front, the €415.99 million reset of St. Paul's CLO VII for Intermediate Capital Managers priced at 89 bps across the uppermost-rated notes, which is the widest triple-A spread observed on a reset since the beginning of February, according to LCD. The other two resets to price during the week — Bilbao CLO III for Guggenheim Partners Europe and Arbour CLO II for Oaktree Capital Management — did so at E+86 bps, with both also coming in below the E+900-bps mark across their single-B notes.
The €368.75 million reset of Bilbao CLO III, via Jefferies, is the latest reset of a 2020 pandemic vehicle. The original €281.65 million CLO priced in May 2020 following the onset of the coronavirus pandemic via Citi, with triple-A notes paying E+144.4 bps, or 205 bps on a discount margin basis, and a WACC of 229.56 bps.
While resets have generally priced at a premium of at least 1 to 2 basis points versus new issues, some market participants have argued that resets of 2020 pandemic vehicles should be treated more akin to new issue deals given that many will be upsized — in some cases doubled — and a considerable portion of the portfolio is likely to have been purchased after the start of the pandemic.
While it remains to be seen whether this will be reflected in the pricing of some of the 2020 resets that will come to market over the next few months, sources argue that managers will likely prioritize these resets before coming to the market with new issues.
One consequence of this, sources note, is that these deals are expected to be less price sensitive, given the handsome spreads that were locked in at the height of the pandemic. "This will make it harder for other deals to compete, such as 2019 vintages," commented one CLO manager.
Elsewhere, one refinancing cleared the market, in the form of a €379 million partial refinancing of Ares European CLO X, which addressed five classes of notes of the original 2018 vehicle. The deal, which has a reinvestment period ending April 2023, priced at E+78 bps across the triple-A notes, which is the widest triple-A spread for a refinancing so far this year.
Note that LCD has made several enhancements to its Global CLO Databank — a comprehensive resource of new-issue CLOs, refinancings and reset information covering the CLO 2.0 era. These enhancements include:
- A breakdown of Middle Market versus Broadly Syndicated CLO volumes and counts in "CLO Volume" tab
- AAA coupons for U.S. new issues
- U.S. dollar and euro-equivalent size for U.S. and European Refis and Resets
- Links to LCD News stories for both U.S. and European Refis and Resets
- Revised layout of "CLO Volume" tab to improve display of new-issue, refinancing and reset volume across the U.S. and Europe
The Global CLO Databank can be found on the CLO Landing Page of lcdcomps.com.