GSO/Blackstone refinancing 2nd U.S. CLO in a week

GSO/Blackstone Debt Funds Management is refinancing its second collateralized loan obligation in a week.

On Tuesday, both Moody’s Investors Service and S&P Global Ratings published presale reports on a repricing of the $617 million Cumberland Park CLO, which was originally issued in May 2014. The transaction also extends the reinvestment period two years to April 2020, with a one-year noncall through April 2019.

And on Friday, the Blackstone Group subsidiary refinanced its oldest outstanding deal, the $468.5 million Tryon Park CLO, originally issued in June 2013. Tryon’s replacement senior notes will carry a coupon of 89 basis points over Libor (narrowed from the original 112 basis point spread), reflective of shorter 1.5-year noncall and three-year reinvestment periods.

Both are part of a rush of CLO refinancings that have so far dominated much of April's activity. According to JPMorgan research, $8 billion of $12.4 billion in 25 CLO deals to price this month have involved refinancing and resets.

Fernando Gregory

Some of the new-deal activity is also driven by the quest for refinancing, with some managers transferring old collateral from 2017 refinancings into new-deal structures to unshackle them from the SEC-letter restrictions against future refinancings and deal changes.

Both Blackstone transactions follow the repeal of skin-in-the-game rules for CLOs last week. Managers are no longer required to hold 5% of the economic risk of their deals. Both Tryon Park and Cumberland Park were grandfathered from the rules, and moreover were eligible to be refinanced, once, without triggering compliance, under certain circumstances.

Now that the rules are no longer in effect for CLOs, however, managers don't have to worry about triggering compliance, no matter how much deal terms are changed.

GSO/Blackstone is one of the largest U.S. CLO managers, with some $40 million under management; in addition to Tryon Park and Cumberland Park, it has five other deals that have exited their noncall periods (one is also past its four-year reinvestment window) and so are eligible to refinanced. Before last week, however, it hadn't refinanced a CLO since December 2017.

The $618 million Cumberland Park CLO, issued in 2015, exited its noncall period in the third quarter of 2017 but is only now refinancing the AAA notes from the original 141 basis points over Libor to a lower rate of 80 basis points, with a new one-year noncall and two-year reinvestment period applied to the deal. (GSO/Blackstone negotiated a one-year extension to the deal’s weighted average life covenant, as well.)

Blackstone had five CLO refinancings between December 2016 and April 2017 in which it avoided triggering compliance by taking advantage of a one-time exception by issuing replacement notes — with no other changes to a deal’s terms, covenants or maturity.

The only deal Blackstone ever refinanced that triggered compliance to risk retention was last December’s repricing and extension of the $820 million Sherman Park CLO, originally issued in May 2015. While the CLO manager took on a 5% eligible horizontal stake in the debt and equity portions of that portfolio, it also negotiated “broad discretion” to exit its stakes without consulting noteholders should the rules no longer apply, according to Moody’s.

In 2017, Blackstone issued six new-issue deals totaling $4.4 billion that all adhered to risk retention, through the same horizontal-strip model applied to Sherman Park.

In addition to the repricings, GSO/Blacksone this week launched its third new-issue U.S. CLO of 2018, the $512.1 million Chenango Park CLO. It also refinanced a European deal, the €501 million Elm Park CLO DAC.