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Credit Suisse kicks off Euro CLO market in €407M deal

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London-based Credit Suisse Asset Management (CSAM) is issuing a €407 million collateralized loan obligation that appears to be the first deal of 2019.

According to presale reports from Moody’s Investors Service and Fitch Ratings, CSAM will be offering six classes of notes to European investors through Cadogan Square CLO XIII DAC. The Class A notes totaling €246 million have an expected price of 100 basis points over three-month Euribor. That's slightly wider than the 98.5 basis points average for deals issued in December.

The transaction will also have five subordinate classes of subordinate notes and a residual tranche (€36.9 million) to serve as risk-retention on the deal.

The transaction has 4.5-year reinvestment period and is non-callable for two years. The identified portfolio has a weighted average spread of 3.7%, a weighted average coupon of 4.71% and a weighted average life of 5.84 years.

The deal allows the acquisition of riskier assets; it has a 7.5% cap on triple-C rated loans, a 5% cap on payment-in-kind/deferrable securities assets, 3.75% of current-pay assets which meet one or criteria of an otherwise-defaulted loan, and a 5% level of corporate rescue loans.

Up to 20% of the portfolio could include non-euro assets, and up to 30% of the loans can be covenant-lite.

Moody’s noted that up to 3% of the portfolio would be allowed to include long-dated restructured obligations that would extend a loan maturity on or past the maturity date of the CLO’s notes. That has the potential of extending the portfolio’s weighted average life.

Fitch pointed out that the deal documents do not permit CSAM to reclassify trading gains from asset sales as interest proceeds, rather than principal funds to be used for notes paydown.

Credit Suisse Asset Management has US$56.1 billion in assets under management and currently managed eight CLOs in Europe.

The deal is CSAM’s fourth European CLO since since January 2018, when it closed on the €451.1M Cadogan CLO X DAC.

European new-issue volume in 2018 reached a post-crisis peak of €27.3 billion, up from €20 billion in 2017.

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