Still relying on Libor, Brightwood SPV Advisors is approaching the market with its first collateralized loan obligation transaction of 2021, which is structured similarly to its last CLO priced in December 2020 and illustrates what a difference a year can make in terms of pricing.
Brightwood currently manages $720 million in CLO assets, representing two CLOs, and total assets of $4 billion. The current deal, Brightwood Capital MM CLO 2021-2 Ltd., is a $427.85 million middle market CLO, bringing Brightwood Advisors total CLO AUM to $1.25 billion, according to a recent S&P Global Ratings pre-sale report.
The transaction is split into six rated tranches, ranging from a $218 million, AAA piece providing a coupon of three-month Libor plus 165 basis points, to a $14 million BBB portion with a coupon of three-month Libor plus 400 basis points. Two of the tranches are fixed rate, pricing for coupons of 2.80% on the AA slice and 3.87% on the single-A piece.
The 2020 CLO that priced in December, when Covid infections were skyrocketing but a vaccine was in sight, priced significantly higher, at three-month Libor plus 190 basis points on a $234 million, AAA tranche, and 540 basis points over Libor for the $14.5 million BBB piece. Two fixed-rate tranches, rated the same as the current deal, priced respectively for coupons of 3.00% and 4.29%
S&P Global Ratings notes that the deadline for Libor cessation was delayed until June 2023 for one- and three-month Libor, and that the Brightwood CLO is “generally consistent” with the key principles to fallback to a Libor-alternative rate that were recommended by the Alternative Reference Rates Committee (ARRC). The ARRC is a Federal Reserve-sponsored private group that supported the development of the secured overnight funding rate (SOFR), the Libor-replacement rate that the syndicated loan market is currently leaning toward.
With respect to past CLO transactions from Brightwood SPV Advisors and rated by S&P Global Ratings, the rating agency says the current deal has a lower overlap in collateral composition and lower average portfolio turnover rate. It also notes that its industry concentration favors commercial services and supplies, and health care providers and services
