CBAM Asset Management this week furthered its runaway case as rookie CLO manager of the year.
The upstart firm, owned by private equity firm Eldridge Industries, has launched its fourth large-dollar collateralized loan obligation deal of the year with the launch of the $1 billion CBAM 2017-4 transaction.
After closing, CBAM will have sold more than $5.1 billion in broadly syndicated CLO bonds in less than eight months, making it the largest U.S. issuer this year by volume, more than established managers such as GSO Blackstone ($3.79 billion) and CIFC ($3.65 billion), according to data from Thomson Reuters LPC and ratings agency presale reports.
The $640 million senior tranche of notes to be issued by CBAM 2017-4 is rated AAA by Fitch Ratings and pays 120 basis points over three-month Libor.
The deal is smaller than its prior $1.3 billion CBAM 2017-3 deal issued in September, but is still almost double the size of the average $541.1 million primary CLO deal size seen industrywide during a busy third and fourth quarter period for new issuance ($50 billion, according to Wells Fargo).
CBAM 2017-4 will have a longer reinvestment period (5.1 years vs. 4.1 years) and a longer weighted average life of nine years (vs. eight years) than the sponsor's previous transaction.
CBAM’s four deals this year have each topped $1 billion, which sources have said is partly supported by the pipeline of loan investments it acquires through its affiliation with Security Benefit Life Insurance Co., another Eldridge Industries-owned subsidiary.
The Security Benefit connection will be yielding more business for CBAM soon. According to a Nov. 14 regulatory filing, Security Benefit will be issuing its CLOs under a new shelf, Cottonwood CLO, which sources say will be managed by CBAM. (The ABS-15G filing does not disclose the prospective size of the offering.)
CBAM was formed last year in a partnership between Eldridge – which is led by ex-Guggenheim president and Los Angeles Dodgers co-owner Todd Boehly – and three former CLO executives with experience at Guggenheim, Octagon Credit Investors and Och-Ziff.
New deals
Onex Credit Partners has priced its fourth CLO of 2017 with an AAA 115-basis-point spread for its $611.5 million OCP CLO 2017-14. The deal pushes Onex’ total CLO assets under management to more than $6.5 billion, according to a presale report by S&P Global Ratings. (Including non-CLO assets, Onex has more than $30 billion under management.) The $345.6 million senior, AAA rated tranche of OCP CLO 2017-14 pays Libor plus 115 basis points, according to S&P. The deal features a five-year reinvestment period and a longer-than-average two-year non-call period.
Also pricing this week was Jefferies’ JFIN Reolver 2017-3 transaction, sized at $271.5 million, according to Thomson Reuters . The AAA coupon was 124 basis points over Libor.
Month-to-date, new U.S. CLO issuance is $8.12 billion across 12 deals, including four middle-market CLOs from Fortress, Nuveen Alternatives Advisors, Barings and Antares Capital Advisers. Fortess’ $1.5 billion Fortress Credit Opportunities 2017-9 is the largest deal of the month.
Refinancings/Resets
According to a presale report issued by Fitch Ratings, Golub Capital Partners will issue $611 million in replacement notes to refinance its May 2015-vintage CLO 23 deal (originally $450 million). Through its OPAL BSL LLC managing subsidiary, Golub will pick up $600 million in new senior loans for the portfolio. The replacement notes are priced at Libor plus 120 basis points, per Fitch Ratings. The deal will close December 7 with a 5.1-year reinvestment period, a 2.1-year noncall and a 9-year expected weighted average life of the deal.
Among refinancings and resets pricing this week were York Capital’s York CLO 2 with a 115- basis-point AAA coupon; Neuberger Berman CLO XX at 80 basis points; and Carlyle Investment Management resetting its $525 million Carlyle US CLO 2013-3 transaction at 110 basis points, as arranged by Citigroup.
Never-too-early predictions
Wells Fargo’s structured finance team is projecting a potential record year for CLO primary issuance in 2018, albeit with widening spreads in the second half of the year due to increasing supplies of competing investment-grade fixed-income asset classes.
Ina 2018 outlook published Friday, Wells Fargo analyst Dave Preston wrote that the CLO market faced “combined headwinds of deteriorating credit fundamentals and an increased supply of CLOs and of competing products – all while spreads are at post-crisis tights.”
Increased demand for floating-rate assets might initially keep CLO senior and mezzanine spreads at their tightest post-crisis levels (including 115 basis points on AAA paper) heading into the first quarter, according to the report. "But that increased fixed income supply amid removal and deceleration of central bank stimulus leads to flat to wider spreads in H2 2018 – especially down the stack."
Several fundamentals point to increased issuance in 2018: the growing volume of funds targeting CLO investments; the broadened roster of CLO managers in the space for both broadly syndicated and middle-market loan portfolios; and “large-scale” capital raising for risk retention investments, Wells reported.
Wells Fargo is forecasting $125 billion in new issue CLOs next year, which would top the $124 billion mark achieved in 2014.
That is, only if 2017 doesn’t get there first. Year-to-date CLO deal volume has reached $102 billion, already serving as second-highest yearly total for the CLO 2.0 market. More than $21 billion of new issuance has been added to the CLO pipeline in the fourth quarter, according to Wells.
