A whopping 15 U.S. CLO deals priced in the first week of December, pushing issuance levels above 2015 activity as managers push to complete collateralized loan transactions before the onset of risk-retention requirements.
On Wednesday, three CLOs were issued for DFG Investment Advisors, Octagon Credit Investors and PGIM.
DFG priced a new $458 million deal under the name Vibrant CLO V through BNP Paribas, a follow-up to its fourth pooling of broadly syndicated senior loans in September). Octagon Investment Partners 29 is a $511 million deal stuck through Credit Suisse that has a 4.5-year reinvestment period and a higher-than-average eight-year weighted average life test covenant of the unpaid principal of the underlying loans.
Dryden 36 Senior Loan Fund was a $612 million transaction that resets the terms on PGIM’s vintage 2014 portfolio. The new deal underwritten by Goldman Sachs extends its non-call and reinvestment period by three years to October 2021. As part of the agreement with investors, PGIM shaved its management fee from 0.3% to 0.22%.
It was PGIM’s second deal of the week, following the closing of its €415 million
Dryden Leveraged Loan 2016-48 transaction in Europe.
Other issuers this week included Apollo Credit Management (which also completed both U.S. and European deals), BlueMountain Capital, MidOcean Credit Partners, Oak Hill Advisors, CVC Credit Partners, TCI Capital Management, Fortress Investment Group, Maranon Capital, Carlyle Investment Management, American Money Management, and Trimarian Advisors Management.
The 15 deals totaling $6.9 billion in December, according to JPMorgan Leveraged Loan and High Yield research, follow up brisk November activity of $10.6 billion in new CLO and $11.18 billion in refinance/reset activity among the asset class through 21 different managers, according to Thomson Reuters.
The risk retention guidelines taking effect Dec. 24 (set forth under the Dodd-Frank Act) will require managers or a majority-owned affiliate of the management firm of new-issue CLO deals to book and maintain a 5% stake of the notional value of a transaction to promote an alignment with investor interest. Existing CLOs will be grandfathered from the standard.
Outstanding CLOs that refinance after Dec. 24 would be also be exempt, but would be restricted from altering terms and conditions of a portfolio other than the interest rate, according to a “no action” letter issued last year by the Securities and Exchange Commission. No additional assets, the underlying capital structure, payment priority features, and voting/consent rights can be altered. In addition, the refinancing would have to take place within four years of the CLO’s original issue date.
At that time, Wells Fargo estimated $152 billion of CLOs maturing in 2017 faced the prospect of triggering risk retention through the issuance of new securities under a refinanced transaction.
Due to the restrictions, many CLO managers have refinanced early, or issued new deals over the last two years with extended non-call and reinvestment periods to extend the risk-retention exemption as far into the future as possible.
According to Thomson Reuters, refi and reset activity has topped a record-level $20 billion in October and November, bringing the total to $28 billion on the year.
The year-to-date pricing of European CLOs total €18.3 billion through Dec. 7, through a total of 46 deals. That far exceeds the year-ago levels of 33 deals with €13.5 billion in volume.