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ArrowMark's next open-market CLO includes middle-market loans

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ArrowMark Colorado Holdings is including middle-market corporate loans in the next transaction issued via its Peaks collateralized loan obligation platform.

Peaks CLO 3 is a $153.7 million transaction backed by a mix of both broadly syndicated corporate loans and loans to small and medium-sized companies.

Though broadly syndicated loans account for the bulk of the collateral (85%), the notes being issued are expected to price more in line with a middle- market CLO. The Class A notes, which are provisionally rated AAA by Morningstar Credit Ratings and S&P Global Ratings, have an assumed spread of 165-170 basis points over three-month Libor and a weighted average life of 5.2 years.

The deal is being arranged by Guggenheim.

Middle-market loans aren't the only unusual feature. The portfolio has a concentration limit of 10% for triple-C-rated loans, well above the more typical 7.5%. The ceiling on obligations that are treated as “current-pay” despite meeting one or more criteria for a defaulted security is also higher than usual at 10%.

Moreover, up to 15% of the portfolio may be second-lien, senior unsecured or first-lien/last-out loans.

Unlike with other CLOs derived from middle-market loans, ArrowMark does not originate the loans. Morningstar noted, the manager relies on loan covenants to back asset quality – one reason that the portfolio limits covenant-lite loans to 50% of the portfolio total.

Morningstar also reported that the company “generally prefers to acquire such collateral as lightly syndicated loans, placing high importance on each loan’s liquidity.”

Peaks CLO 3 is ArrowMark's 13th CLO. The firm has $16 billion in assets under management, including $6 billion in CLOs. (It also issues CLOs through its Elevation shelf.)

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