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Higher-leverage re-issue CLOs add $2.36B to refi pipeline

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Four CLO transactions that are re-issues of four- or five-year-old transactions have been added to a month-to-date repricing pipeline that topped $8.8 billion through Wednesday.

The deals also continue a recent trend of presenting investors with collateralized loan obligations with elevated leverage levels, in comparison to market averages over the summer.

Ratings agencies this week published presales of BlueMountain Capital Management, CIFC Asset Management, GoldenTree Asset Management and HPS Loan Management for each firm’s re-issuance of older deals that had exited their active trading windows.

Re-issues are an increasingly popular ploy by CLO equity managers (with investor support) to “amend and extend” the noncall and reinvestment period of well-performing deals by repackaging collateral from prior-issued broadly syndicated loan portfolios.

The repurposing of old loans to collateralize new securities also allows managers to essentially perform a second refinancing for CLOs that had been locked down for purposes of preserving an exemption to risk-retention rules in effect until this past spring.

Re-issues have accounted for more than $25 billion of $110 billion in repricing activity in CLOs through the end of August, according to Thomson Reuters LPC.

BlueMountain CLO 2018-3 is a $613.2 million open-market CLO, according to S&P Global Ratings. The assets are being reassigned from the $612 million BlueMountain CLO 2014-3, which was previously refinanced in April 2017.

GoldenTree Loan Opportunity Funds IX, a $672.8 million CLO which has also been previous refinanced. The triple-A tranche of $402.3 million in notes is priced at 11 basis points over Libor.

Other repurposed refis being issued are CIFC Funding 2014-V, a repricing of a $568.1 million CLO originally issued by CIFC in December 2014 and the $516.8 million Highbridge Loan Management 5-2015 overseen by HPS.

Each of the CLOs had leveraged of over 10x, which is above the average of 9.18x of S&P rated CLOs of broadly syndicated loans over the past three months.

CLOs that undergo re-issues or resets – which are repricings that do not change the maturity profile of deals – sometimes contain higher leverage as a result of new notes replacing equity in order to finance the replacement of defaulted assets with new debt collateral, according to Morningstar Credit Services analyst John Nagykery. (Morningstar did not rate any of the proposed CLO re-issues.)

BlueMountain’s re-issued deal includes a new $10 million single-B rated Class F tranche, similar to an expanded stack for CVC Credit Partners’ Apidos CLO XVIII-R transaction that priced last Friday (114 basis points over Libor for the $366 million Class A notes).

The new Apidos portfolio has one of the largest debt/equity ratios of CLOs this year at 16.72x, with the reduction in the lowest subordinated notes – or the equity tranche – to $33.6 million from the deal’s original $67.6 million level.

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