The second European collateralized loan obligation of the year is the first ever by U.S. money manager BlackRock. 

BlackRock European CLO I is a European cash flow deal, securitizing a portfolio of primarily senior secured euro-denominated leveraged loans and bonds issued by European borrowers. BlackRock Investment Management (UK) Ltd. is the collateral manager.

Credit Suisse is the arranger.

Standard & Poor’s assigned ratings to €410.238 million of notes issued by the trust. The senior class, rated ‘AAA,’ is split into two tranches; one for €250 million that pay three-month Euribor plus 150 basis points and another for €21.8 milllion that pay a fixed rate of 1.55%. Both benefit from credit enhancement of 40.79%.

The ‘AA’ rated class is split into two tranches that pay euribor plus 222 basis points and 2.24%/

Those levels are in line with the only other European CLO to price this year, from Oaktree Capital Management. The triple-A rated tranche of the €414 million Arbour CLO III also pays euribor plus 150 basis points, and the double-A tranche pays euribor plus 222 basis points, according to Thomson Reuters LPC.

But BlackRock had to pay up further down the capital stack, and it reportedly withdrew the most subordinated tranche, which was to be rated single-B.

The ‘A’ rated tranche pays euribor plus 320 basis points, 15 basis points wide of Oaktree’s deal; the ‘BBB’ rated tranche euribor plus 450 basis points, vs 420 for Oaktree; and the ‘BB’ rated tranche euribor plus 650 basis points, 6 basis points wide of Oaktree.

European regulation requires European institutional investors that purchased CLO securities to adhere to the requirement that the original lender, originator, and sponsor of the CLO transaction retains a material net economic interest of at least 5% or incur high regulatory capital charges. According to S&P, the collateral manager will hold notes on a vertical basis equivalent to 5% or more of the maximum collateral balance in order to meet the retention requirements as the retention holder.

BlackRock has issued approximately $6.3 billion of U.S. cash flow CLOs since 2002 and it has a third-party CLO investment team with approximately $8.1 billion in assets under management invested globally, according to S&P.

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