Apollo-backed Redding Ridge readies its 1st European CLO
Redding Ridge Asset Management, which was originally created as a vehicle to hold "skin in the game" CLOs managed by Apollo Global Management, is readying its sixth collateralized loan obligation of its own. Unlike the first five, which were denominated in dollars, this one is denominated in euros.
The €400 million RRE 1 Loan Management DAC (designated activity company) is backed by a mixture of below-investment-grade European corporate loans and high-yield bonds, according to Moody's Investors Service. The deal has an expected shelf life of 8.5 years as an investment vehicle, with a 4.5-year reinvestment period and two year non-callable period, according to presale reports from S&P Global Ratings and Moody’s Investors Service.
The senior, triple-A Class A1 notes totaling €224 million will pay 108 basis points over three-month Euribor, according to Moody’s; a junior triple-A tranche of Class A2 notes sized at €8 million will pay 145 basis points over Euribor.
The portfolio projects to have a 3.5% weighted average spread (or a minimum income) over the liability costs of the deal, plus a 5% referenced weighted average coupon.
There is a 30% limit on covenant-lite loans that lack a lender’s financial or maintenance reporting requirements.
Moody’s said one weakness of the portfolio is that the manager is allowed to consent to amendments proposed by borrower to extend the duration of a loan without this extended loan counting toward the CLO's weighted average life test; at least not during the reinvestment period. "Extending a portfolio’s weighted-average life increases default risks," the presale report notes. The maturity of assets cannot be extended beyond the legal maturity of the CLO securities, however.
Redding Ridge was established in 2016 as a capitalized manager vehicle for retaining the equity interests of Apollo CLOs, in compliance with both U.S. and European risk-retention requirements at that time. Apollo owns a 41% share of Redding Ridge, according to presale reports.
Last year, a U.S. district appeals court panel overturned U.S. federal regulators’ rules requiring risk-retention on U.S. CLOs, which had been drawn up under Dodd-Frank Act statutes forcing managers to hold a minimum 5% stake in sponsored deals.
Redding Ridge subsquently began issuing and managing its own deals through the platform. It's first deal, RR 1 LTD, was issued in July 2017 with refinanced assets from a 2014 vintage Apollo CLO (the $700 million ALM X).
After sponsoring the $452.75 million RR 2 transaction of new assets in 2017, Redding Ridge rolled out three U.S. CLOs in 2018 – the last of which was the $505.1 million RR 5 Ltd. deal last September.
Redding Ridge manages $5.9 billion in CLOs, not including RRE 1; Apollo manages $14.3B in U.S. and European CLOs.