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Crestline Denali expands capital stack in $390M CLO reset

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Crestline Denali Capital is adding interest-only notes as well as a new single-B rated tranche to extend the capital stack in a $390 million reset of its September 2016 Crestline Denali XIV collateralized loan obligation transaction.

According to presale reports from Fitch Ratings and Moody’s Investors Service, the manager will add $3 million Class X notes in the first position of the capital stack, and a new $3 million Class F tranche that will be at the end of payment waterfall ahead of first-loss equity debt position of the deal.

The $249.6 million triple-A replacement notes are being rated by Moody’s Investors Service and Fitch Ratings. No proposed spread pricing for the tranche has been announced.

The non-call period has been extended two years until October 2020, and, as a reset, the reinvestment period originally slated to expire January 2021 will now be open through October 2023.

The legal maturity of the notes has also been extended three years. (Over the last two years, market data firms have distinguished resets from standard refinancings, due to extended trading periods and maturities that extend the former expected shelf life of a deal. Over $61 billion in reset volume took place through the end of August, compared to $24.6 million in refis.)

The transaction is the second reset/refinancing for Crestline Denali this year. In April, the manager repriced the $361 million Denali Capital CLO XII at 105 basis points for the $323.75 million AAA-rated tranche.

Denali Capital CLO XII was issued in February 2016 and was the first CLO printed by the firm following the October 2014 CLO partnership established between Fort Worth, Tex.-based Crestline Investors and broadly syndicated commercial loan specialist Denali Capital of Oak Brook, Ill.

The closing date for the refinancing of Crestline Denali XIV is to be determined.

Moody’s noted some concerns with the transaction. For instance, the documents permit the manager to hold a “larger than typical” cumulative limit on both bankruptcy exchanges as well as take on asset maturity amendments that might extend a deal’s intended weighted average life.

Also, under certain conditions an obligor’s missed loan payment won’t count as a defaulted asset in the portfolio.

Under the bankruptcy exchange provision, Crestline Denali can trade out a defaulted asset for either another default or a credit-risk asset, up to 25% of its portfolio size, which could cause greater-than-expected variances in the portfolio’s recovery rate levels, Moody’s stated.

And while managers are not permitted to agree to asset maturity extensions beyond the maturity of the notes, there are exceptions for preventing the asset from becoming a defaulted obligation or to minimize material losses. Moody’s report says up to 20% of the portfolio may contain such loans with extended maturities without regard to the WAL test.

The two refinancings this year will match the primary market activity for Crestline Denali. The firm last month priced its second new-issue deal of the year with the $407 million Crestline Denali CLO XVII through Barclays. In January, the firm issued the $409 million Denali Capital CLO XVI via BNP Paribas with a 112 basis point spread on the triple-A notes, according to Thomson Reuters data.

Crestline Denali Capital manages five CLOs and a warehouse facility with a combined $2.3 billion in assets, according to Moody’s and Fitch.

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CLOs CDOs Crestline Denali Capital