Diameter CLO Advisors is bringing its second collateralized loan obligation (CLO) to the securitization market to raise $393 million, bringing its total CLO assets under management to $2.2 billion.
At least 90% of the collateral pool is made up of senior unsecured loans, cash and eligible investments, according to analysts at S&P Global Ratings, adding that a minimum of 85% of the loan borrowers must be based in the U.S. or Canada, while no less than 60% of the loans can be covenant-lite, according to the rating agency. Diameter's AUM favors loans to the software industry.
Goldman Sachs and Apollo Global Securities are placement agents on the deal, according to the rating agency, which has a September 28 closing date. Diameter has a total leverage of 11.90, higher than the three-month average of 9.86. U.S. Bank Trust is the trustee.
Diameter CLO Advisors manages four CLOs and has about $1.8 million in total AUM. The manager's deals issued after the financial crisis have an average portfolio turnover rate of 31.35% over the past 12 months, higher than the average 12.14% for all CLO 2.0 transactions that S&P rates.
The deal's par subordination for the 'AAA' and 'BBB' rated notes is 40.0% and 12.5%, respectively. On a weighted average basis the deal's cost of debt is 2.40%, just a notch less than the three-month average comparison of 2.60%, and the deal has a portfolio recovery rate of 41.04% and 62.6% on the 'AAA' and 'BBB' notes, respectively, S&P said.
Diameter also has a scenario default rate (SDR) of 62.33% and 43.01%, on the 'AAA' and 'BBB' notes, respectively.
Subordination through the deal's seven classes of notes; excess spread and overcollateralization provides credit enhancement to the notes. All of the notes are benchmarked to the three-month Secured Overnight Financing Rate, with spreads ranging from 1.85 basis points on the A1 notes to 7.57 bps on the class D notes.
S&P plans to assign ratings of 'AAA' to the A1 notes; 'AA' to the A2 notes; 'A' to the class B notes; 'BBB' to the C1 notes; 'BB-' to the C2 notes and 'BB-' to the class D notes.
