CLO Reset Trend Catching On in Europe

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Even European CLO managers are getting in on the reset game.

Last week the European arm of Pinebridge Investments refinanced the Euro-Galaxy III CLO, a  collateralized loan obligation originally issued in 2013, to reprice the entire transaction, according to Standard & Poor's. 

It followed in the footsteps of Apollo and KKR, which also reset CLOs this month.

Unlike the U.S., where there has been a wave of resets as managers seek to extend the life of deals before risk retention rules take effect on Dec. 24, European managers are taking advantage of a dramatic narrowing of spreads that lower the cost of issuance. Demand from yield-hungry investors from the U.S. and Asia have driven spreads inside 100 basis points over Euribor.

By resetting the rates on existing deals, managers avoid the trouble and expense of issuing new deals at a time when collateral is scarce. In the case of Euro Galaxy III, however, Pinebridge was able to raise additional funds, according to S&P. Proceeds will be used to redeem the existing rated notes, purchase additional collateral up to the increased target par of €370 million (from €327.75 million originally), and to pay any fees associated with the reset.

The rating agency assigned an AAA rating to a senior tranche of variable funding notes and a senior tranche of term notes, both of which pay 102 basis points over Euribor.

J.P. Morgan Securities is the arranger.

The transaction isn’t expected to close until Jan. 17.

The transaction will be non-callable for two years from closing. The manager will be able to actively manage the portfolio for four years, until January 2021.

PineBridge Investments Europe is the collateral manager and Credit Industriel et Commercial is the junior collateral manager.

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