(Bloomberg) -- Apollo Global Management Inc. is seizing on an upturn in credit conditions to potentially bring Europe's first collateralized loan obligation refinancing in more than a year.
The behemoth asset manager's Redding Ridge unit has sent a notice to the investors of its CLO, which repackages leveraged loans and turns them into bonds of differing ratings categories, according to people familiar with the matter who aren't authorized to speak publicly. The notice is a precursor to a reset deal, a type of refinancing that can extend the life of CLOs for years, the people said.
If Apollo proceeds with a reset, it would mark the first such transaction in the region since May 2022, according to data compiled by Bloomberg. In the past, resets have made up as much as a third of annual issuance but last year's sharp deterioration in credit conditions all but put the deals on ice.
A representative for Apollo declined to comment.
CLO Market Set for $20 Billion Reset Spree in Sign of Thawing
The CLO in question was issued in the latter part of 2022, when credit spreads were significantly wider than they are now, and has a one-year non-call period. Resetting allows CLO issuers to essentially cut the costs at which they borrow. That means more money is left over for the holders of the riskiest and highest-returning part of the structure, the equity portion, after other noteholders have been paid.
The biggest and safest CLO tranches, the AAA bond, have dropped to around 180 basis points over the benchmark for new European deals in July, data compiled by Bloomberg show. Last fall, they were pricing at more than 200 basis points.
Apollo is looking to do the reset in September, a separate person with knowledge of the matter said.
The reset trend first emerged in the US, where there's been a couple of resets of traditional CLOs in the past few months. They're also expected in Europe, though most will likely occur later in the year given 2022 deals from the region often had longer non-call periods.
An estimated €3 billion ($3.3 billion) of CLOs should be ripe for resets, Bank of America European CLO strategist Dustin Walpert said in an interview earlier this month.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.
