Deerpath Capital Management is preparing to issue a $429.5 million collateralized loan obligation (CLO), a middle-market transaction that includes several changes the collateral, including a higher overlap on collateral composition and a shift to include more health care providers and services.
The transaction, known as Deerpath CLO 2021-2 will bring the platform’s assets under management to about $1 billion, according to S&P Global Ratings. Deerpath contains 57 obligors, with the average obligor holding representing 1.7% of the portfolio and the largest accounting for 2.7%, S&P said.
Senior secured loans, cash and eligible investments will secure at least 95% of the collateral, and about 90% of borrowers will be based in the United States. Covenant lite loans can account for only 15% of the underlying loans in the collateral pool.
Greensledge Capital Markets is the lead placement agent on the deal, and Raymond James & Associates serves as co-placement agent, the rating agency said. Deerpath will issue notes through about six classes of notes in a senior-subordinate structure.
In terms of subordination, the ‘AAA’-rated notes benefit from a 44.9% level of subordination, while the ‘BBB’-notes will have a subordination level of about 20.8%. The notes also receive credit enhancement through excess spread and overcollateralization, the rating agency said. Deerpath also has an average senior overcollateralization cushion of about 10.6%
Deerpath’s 12-month average portfolio turnover rate of 37.8% was higher than the 25.3% of all CLO 2.0 transactions, or deals issued after the financial crisis, the rating agency said.
Deerpath also has an overlap in collateral composition of 67.6%, compared with the 57.2% average for all CLO 2.0 transactions.
The rating agency expects to assign ratings on the notes ranging from ‘AAA’ on the $218 million class A-1 notes to ‘BBB-’ on the $17 million class D notes.
IT services is the top industry represented, accounting for around 19% of the identified portfolio, followed by healthcare providers and services, accounting for slightly less than 19% and commercial services and supplies, about 6.5%, then real estate management and development, at around 11%, and distributors, representing about 4% of the portfolio, rounds out the top five industry distribution in the portfolio.
