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Ares' 2nd Euro CLO of 2018 pricing wide of initial deal completed in February

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Ares European Loan Management, an affiliate of the Los Angeles-based Ares Management, is offering its second euro-denominated CLO of the year at spreads that are considerably wider than those of the the initial deal, completed in February.

Ares European CLO X B.V. securitizes €412 million (US$481.8 million) in senior corporate loans and high-yield bonds. Seven classes of notes will be issued, according to presale reports issued Monday by Moody’s Investors Service and Fitch Ratings.

The €244 million tranche of Class A notes has a coupon of 85 basis points over Euribor. That's 17 basis points wide of the 68-basis-point spread on the comparable tranche of the €413 million Ares European CLO IX.

The spreads on the February deal were among the tightest in a month where the average discount margin was 69 basis points. A spike in price spreads occurred in March when deals were pricing at an average of 75 basis points, and have since settled at 78 basis points in May and June, according to Thomson Reuters LPC.

Other European issuers pricing AAA spreads in the 80s this month include CVC Credit Partners European CLO Management and Carlyle Group's CELF Advisors. (Barings UK Ltd., another multiple-issuer of European CLOs in 2018, has a second primary deal in the market with a price to be determined, according to presale reports.)

Spreads for the remaining classes were also wider, with Ares adding some new risk elements to the deal compared to Ares IX – such as a potentially larger bucket of low C-rated loans in the pool of assets.

Ares will also issue a €1.75 million interest-only tranche of Class X notes in the deal, and €38 million in subordinate notes that will include a portion of notes that Ares will maintain to meet European risk-retention regulations.

Nonvoting replacement notes will also be included, allowing for U.S.-based institutional investors to buy into the deal without running afoul of Volcker Rule prohibitions against banks having ownership interests in hedge funds.

Ares has to date only identified only €260 million of the collateral for the deal, which is expected to close in September. The deal will be non-callable for two years and will be actively managed for four and a half years.

Ares’ London office currently managed four outstanding European CLOs.

According to JPMorgan, €2.5 billion in new-issue European CLOs have priced in July.

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