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Five Arrows builds fixed-rate options into next Euro CLO

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Five Arrows Managers is issuing a pair of fixed-rate tranches in its new €412 million Contego VI DAC European CLO portfolio – including a rare offering of a set rate within the triple-A stack.

The Contego VI collateralized loan obligation will include €15 million in fixed-rate senior notes that are part of the triple-A cash flow portion of the deal, according to presale reports from Fitch Ratings and Moody’s Investors Service.

The €15 million tranche makes up 3.64% of the portfolio notes issuance, slightly more than the 2.5% share of the double-A rated €10.5 million subordinate tranche. According to Fitch, the fixed-rate tranche is designated as the Class A-1 tranche, ahead of the primary €233 million Class A-2 triple-A notes that will carry a variable rate coupon to be determined.

Both tranches are supported by 38% credit enhancement.

CLOs are typically structured with vertical payment flows of floating rate instruments of variable terms and rates. This year, several European CLOs have been issued with fixed rate tranches, but most offer a sliver of notes within a double-A or single-A tranche in the lower senior tier of a deal.

Three other recent European deals have offered triple-A, fixed-rate notes. Blue Mountain Fuji EUR CLO III has a $10 million tranche with a coupon of 1.04% in its €359.5 million portfolio , while the €412 million OXLME IV DAC portfolio managed by Och-Ziff Europe Loan Management sold €25 million in 1.6% notes that made up 6.06% of the portfolio.

In addition, PGIM’s £325 million Dryden 63 GBP CLO 2018 (a deal exclusively denominated in British pound sterling) has a £9 million AAA-rated fixed rate tranche (with a 2.65% coupon) among three fixed-rate classes in the deal stack.

The deal is being placed by Bank of America Merrill Lynch.

London-based Five Arrows, formerly known as Elgin Capital, is part of the Rothschild Group’s merchant banking unit within the Rothschild Credit Management division. The firm managed eight other CLOs in Europe, according to Moody’s.

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