KKR Credit Advisors is joining a recent trend of resetting CLOs with unusually short non-call and reinvestment periods.
According to a presale report published Friday by Fitch Ratings, KKR is issuing replacement notes for the $410 million KKR CLO 13, with only a 1.1-year non-call window and a 1.8-year reinvestment period.
The reset comes just two months after KKR refinanced another portfolio, KKR CLO 20, with a more standard 5.1-year reinvestment period and a 2.1-year non-callable period.
BlackRock and Zais Group have also printed deals this month with abbreviated non-call/reinvestment periods. BlackRock, for example, is refinancing and extending the $651.2 million Magnetite VII for a second time since the deal was first issued in 2012; it will have a non-call period ending in January 2019, while its reinvestment period is only through January 2021 – while lowering the AAA-rated note coupon to 80 basis points above Libor.
Zais is proposing a non-call ending April 2019 and a reinvestment period under three years for its $460.5 million new-issue Zais CLO 8.
Frequent resets with shorter terms generally allow managers to pay investors lower interest rates than they otherwise would. That also gives them flexibility to exit deals ahead of a deterioration in corporate credits,
KKR is paying 90 basis points over Libor on the $256 million reissued Class A-1-R tranche of its CLO 13.
Not all refinancings are squeezing the calendar. Ares Management is refinancing two of its CLOs – a U.S. portfolio and a European deal – with more standard five-year reinvestment periods and two-year non-calls, according to presale reports.
Ares XXXVIII CLO is a $410 million deal with AAA notes being priced at a lower 100-basis-point rate, while adding an interest-only Class X-R note class that will carry a rate of 70 basis points over Libor.
The €413.7 million Ares European CLO IX, one of Ares’ three outstanding Euro-denominated deals, is being priced at 68 points above the negative-rate Euribor benchmark.
The Ares and KKR deals were launched in a week that saw no pricing activity for refinancings or resets in either the U.S. or European market, according to Thomson Reuters LPC.
The previous week, only four new-issue deals priced, according to Thomson Reuters: Pretium Credit Management’s $457.9 million Crown Point IV at 110 basis points above Libor for its triple-A tranche; Palmer Square CLO 2018-1, a $509.9 million transaction with pricing at 103 basis points; and Angelo Gordon’s new Northwoods Capital XVI sized at $527.6 million, with a 106-basis-point coupon.
In Europe, Chenavari Credit Partners closed on Toro European CLO 5, a €414.7 million transaction priced at 74 basis points above the negative-rate Euribor.
In the first 15 days of February, 13 new-issue U.S. deals totaling $6 billion and €1.33 billion in primary European CLO volume has priced, according to Thomson Reuters. An additional $3 billion in U.S. deals and €842.2 million in European volume has been reset or refinanced.