3i Debt Management Prices €400M European CLO

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3i Debt Management has priced a €400 million European collateralized loan obligation, according to Moody’s Investors Service.

The transaction, Harvest CLO XV Designated Activity Co., is a typical cash-flow CLO transaction, backed by a leveraged loan and high yield bond portfolio.

It will issue six tranches of notes with preliminary ratings from Moody’s: the senior €232 million class A notes are rated ‘Aaa’ and benefit from effective subordination of 42%. In its presale report, Moody’ assumes a coupon of three-month euribor plus 150 basis points.

Among ratings concerns cited by Moody’s, the transaction allows for corporate obligors domiciled in a certain countries provided that the foreign currency issuer credit rating of such relevant collateral at the time of the acquisition is rated Baa3 or better. Furthermore, up to 10% of the pool can be domiciled in countries with local currency risk ceiling below Aa3 but not lower than A3.

Another risk is payment frequency mismatch, up to 5% of the pool of collateral can be exposed to obligations paying with an annual frequency, whereas interest quarterly on notes issued by the trust.

To help offset this risk, the manager will create an “interest smoothing” account will be credited with half the proceeds of all semi-annual assets paying during each quarter, with the credited amount released in the interest proceeds on the subsequent payment date.

Founded in 2005, 3i Debt Management has approximately €10.8 billion in assets under management in 37 funds, including 29 CLO funds, unlevered loan funds, mezzanine funds and private equity fund of funds.

3iDM Europe is currently managing 10 European CLOs issued before the financial crisis and seven issued since the financial crisis. It is supported by two portfolio managers and seven credit analysts.

Editor's note: an earlier version of this story misstated the date 3i Debt Management issued its previous European CLO. The previous deal was priced in October 2015.

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