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Carlyle extends its refinancing spree to to middle-market CLOs

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The Carlyle Group’s 2018 CLO refinancing spree has spread to its middle-market portfolio mix.

S&P Global Ratings on Thursday issued a presale report on a proposed refinancing and extension for Carlyle Direct Lending CLO 2015-1R, a portfolio of small- and medium-enterprise corporate loans that is managed by Carlyle Global Credit Investment Management. The deal is the 11th outstanding collateralized loan obligation Carlyle has refinanced or reset, or for which it printed replacement notes in a reissuance of an older-vintage deal.

The replacement notes for the $449.2 million transaction will extend the life of the deal another five years with a reinvestment period open through 2023. The new non-call period is through July 2020.

S&P has assigned triple-A ratings to three senior tranches of fixed- and floating-rate notes on the deal, which was unrated during its original issue.

The Class A-1-1-R tranche, sized at $234.8 million, is priced at three-month Libor plus 155 basis points. A $50 million A-1-2-R tranche is priced at a slightly lower 148 basis point spread, but only for the first two years of the actively managed portfolio; thereafter, investors will receive 178 basis points. A $25 million Class A-1-3-R tranche will carry a fixed-rate coupon of 4.56%.

A fourth $66 million Class A tranche has a preliminary AA rating priced at Libor plus 220 basis points.

The capital stack on the deal – via Citigroup – is rounded out by a $46.4 million Class B tranche pricing at 315 basis points wide of Libor (rated A) and $27 million in Class C notes with a rate of 400 basis points.

The deal would follow 10 other middle-market CLOs that have taken a path to refinance or reset this year, and 24 since 2017, according to a Wells Fargo report issued Thursday.

The pace of refinancing comes ahead of growing competition for assets in the months ahead, Wells believes, with business development companies (BDCs) expected to ramp up business in small/medium-enterprise lending. BDCs, previously restricted to 1:1 lending ratios, had that allowance doubled under language included with the $1.3 trillion U.S. government spending bill signed in March by President Trump.

Wells Fargo expects BDCs that raise their caps will only push the ratio to 1.25x, but even that level of “increased leverage will likely also pressure middle-market loan spreads tighter,” the report stated.

The 11 CLOs refinanced by Carlyle this year account for $5.2 billion in assets. Three of them priced last month: the $402.9 million Carlyle Global Market Strategies (GMS) CLO 2016-1 (tightened to an AAA spread of 95 basis points from 145); the $540.5 million Carlyle GMS 2015-3 (tightened to 100 basis points from 160) and Carlyle GMS 2016-2 (98 basis points, tightened from 150).

Carlyle has only one broadly syndicated CLO remaining with a noncall period expiring this year, according to Fitch Ratings: Carlyle US CLO 2016-4, during the third quarter.

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