Bank of America Merrill Lynch has arranged a $300 million CLO, surprising market participants who, after the worsening of the debt crisis overseas, weren’t expecting to see new CLOs for some time. In fact, other deals are in the works as well, sources say.
“CLOs are surfacing at a cautious pace,” said a New York-based banker. “So market players must think it’s a good time to test the water.”
Wells Fargo has also arranged a $300 million CLO, sources said. That CLO is being managed by Golub Capital and largely consists of midmarket loans from Golub’s balance sheet. Approximately $240 million of the vehicle is made up of loans from Golub’s book, while $60 million has been earmarked to purchase new loans over the next six months. Pricing on the highest-rated tranche is at Libor plus 240 basis points, according to sources.
Indeed, Wells Fargo is looking to arrange one or two more of these types of CLOs by the end of the year, sources said. Likewise, Guggenheim Partners is rumored to be in the market with new CLOs. Calls to Wells Fargo and Guggenheim were not returned by press time.
The Bank of America CLO will consist of refinanced loans and be managed by LCM Asset Management, which is a unit of Tetragon Financial Group. The vehicle will comprise a $212 million triple-A-rated tranche and a $47 million unrated tranche, according to sources. It couldn’t be determined how the roughly $40 million left in the CLO will be rated.
A Bank of America spokeswoman declined to comment on pricing and other specifics.
“I think [the BofA CLO] is getting good traction,” another New York-based banker said. “It will be great for the market to get this done and hopefully more on the follow.”
However, some market participants have their doubts. “The devil is always in the details for CLOs, but this one sounds like there might be more details than average to dig up,” said a Boston-based investor. “What’s the maturity? If it’s very short, I would not call it a real CLO. Watch out for total-return swaps that are called CLOs. What are the default assumptions and the equity return assumptions? Unless all of these elements hang together, this is not a real CLO, it’s a CLO-like transaction designed to do something else.”
Bank of America’s vehicle comes on the heels of other CLOs — largely holding refinanced loans—that have been rolled out this year. The only recently launched CLO that is made up of new loans is the $325 million ALM Loan Funding 2010-1 LTD CLO — arranged by Citigroup and managed by Apollo Management. That vehicle consists of a $215 million tranche of triple-A-rated loans that priced at Libor plus 170 basis points; an $11.1 million tranche of double-A-rated loans that priced at Libor plus 225 basis points, with a discount of 96.11; a $24.7 million tranche of single-A-rated loans that priced Libor plus 230 basis points, with a discount of 91.44; and a $72 million equity tranche.
In March, Citi priced a $525 million CLO managed by an affiliate of WCAS Fraser Sullivan Investment Management. That vehicle — the COA Tempus CLO Ltd — consists of a $343.25 million tranche of triple-A-rated loans, a $15.75 million tranche of double-A-rated loans, a $38.25 million tranche of single-A-rated loans, and a $115.5 million equity portion, bringing the total to $512.75 million. Fraser Sullivan purchased some the loans at a discount, which accounts for the discrepancy in value. The triple-A tranche priced with a coupon of Libor plus 235 basis points. The double-A and single-A tranches have coupons of Libor plus 225 basis points and Libor plus 250 basis points, respectively. The double-A tranche priced at a discount of 94.252, while the single-A tranche priced at a discount of 90.717.
Later that month, Bank of America arranged a $500 million CLO managed by Symphony Asset Management and dubbed the Symphony CLO VII fund. Moody’s Investors Service assigned an 'Aaa' rating to a $317 million tranche, and a Ba2 rating to a $113 million tranche.
And in May, Goldman Sachs arranged a $450 million CLO managed by Doral Money, with Babson Capital Management as the collateral advisor.
Last year, sales of CLOs fell to 17 deals totaling $26.5 billion, the lowest level in more than a decade, according to Bloomberg. That was in stark contrast to 2006 and 2007, years that both saw roughly $100 billion worth of CLOs sold.
