BlackRock has priced its first domestic CLO of 2016 with a $500 million senior loans portfolio that, apart from slightly wider AAA spreads, mirrors its last U.S. collateralized loan obligation transaction in 2015.
BlackRock Financial Management Inc. says it has identified 85% of the targeted portfolio for Magnetite XVII, which at this point is a highly diverse mix mostly first-lien secured loans (97.6% of the assets) from 160 obligors.
Deutsche Bank is the arranger.
According to a presale report, Fitch Ratings issued preliminary ‘AAA’ ratings on the $320 million Class A notes stack, as well as to a small $2.4 million Class X issuance of interest-only notes that are to be repaid from proceeds from the expected interest waterfall . The remaining six trances of the transaction are unrated, including a $38.75 million residual stack in the equity tranche representing BlackRock’s share of the portfolio complying with forthcoming U.S. regulations. It is not expected to comply with Europe’s existing risk-retention standards, however.
The makeup of the portfolio is largely comparable to other recent CLO transactions, including an average rating asset rating quality of ‘B+/B’, a 36% credit enhancement level on the ‘AAA’ tranche, a 10% overcollaterization cushion on restrictions on cov-lite (60%) and international (20%) loan holdings. The CLO has a standard four-year reinvestment period and a two-year noncall period, and is slated for maturity in April 2028.
Magnetite XVII is similar in size to BlackRock’s previous issued in December, but has priced the AAA stack with a floating rate of three-month Libor plus 155 bps compared to 150 bps over Libor for Magnetite XVI. The wider rate is on par with the average spread of CLOs issued since the fourth quarter of last year (154 bps), according to Fitch.
The remainder of the CLO consists of a split B class of notes (a $60 million floating rate B-1 tranche priced at Libor plus 235 bps and a $15 million B-2 tranche with a fixed 3.70% rate), a Class C structure of $27 million notes priced at Libor plus 345 bps; a $28 million Class D tranche priced at Libor Libor plus 515 bps, and a Class E tranche totaling $25 million at Libor plus 815 bps. The CE on the subordinate tranches range from 24% for Class B to 8% for Class E.
Fitch says with most of the underlying loans carrying first-lien status, they have an excellent recovery rating of ‘2’ or better. With 23 obligors remaining to be identified in the remaining 15% loan pool in the portfolio, BlackRock is well within the 7.5% cap on loans rated ‘CCC’ or below.
The portfolio has no more than 0.7% exposure to any one obligor, and the highest industry concentration is the 13.1% of loans from the telecommunications industry. Another 10.1% are from business services firms, 9.1% in computer and electronics, 8.7% in healthcare and 8.3% in broadcasting media. Exposure to fixed-rate assets, deferrable securities, bridge loans and debtor-in-possession loans are kept to a minimum. To comply with Volcker Rule restrictions against proprietary trading of potential bank investors in the CLO, BlackRock does not includes high-yield bonds or notes assets classes in the transaction. It also is restricted from long-dated assets, step-up and step-down securities, leases, synthetic assets and structured-finance assets.
The average weighted spread of the identified portfolio loans is 3.65%, below the average of recent CLOs of 3.77%.
The CLO is the second global portfolio pieced together by Blackrock, which last month issued its debut European CLO totaling €410.238 million of notes.