In choosing to refinance a 2013 vintage CLO last week, LCM Asset Management has ordered up the works.
According to a presale report issued by Standard & Poor’s, LCM is almost completely overhauling its $465.5 million LCM XIII portfolio in ways beyond just extending its reinvestment period so as to preserve an exemption from forthcoming U.S. risk-retention rules.
LCM extended both the maturity date and the weighted average life test date by 4.5 years – in tandem with the reinvestment extension – while also issuing replacement notes as part of a reset maneuver via Deutsche Bank that gave the portfolio slightly higher rates for three of its tranches in exchange for the longer shelf life.
After catching its breath, the firm also raised its par balance target to $500 million, and replaced an existing set of “combo” notes with a new interest-only class of subordinate notes, according to presale reports. LCM, which oversees 14 CLOs with $6.5 billion under management, also expanded the deal’s 40% concentration restriction on covenant-lite loans to the more common 65% threshold used in many new issue CLOs today.
Had LCM waited beyond the Dec. 24 risk-retention deadline, the unit of TFG Asset Management might have found itself subject to new “skin in the game” rules that would require it or a sponsoring affiliate to retain a minimum 5% notional share of the portfolio on its books.
LCM’s deal will follow in the footsteps of 34 other CLOs that have priced this month in a wave of refis driven by risk retention, according to JPMorgan high yield and leveraged loan research. Among deals priced were MJX Asset Management’s $365 million Venture XIX portfolio through Jefferies and Credit Suisse’s Madison Park Funding XVI ($491 million) via Deutsche.
The year-to-date deal count in the U.S. is 247, at a volume of $109.8 billion, which pushes past last year’s comparable period of 211 deals sized at $107.6 billion.
Several European CLO deals closed this week as well, as a suddenly boisterous overseas market has developed for Euro-denominated deals at year’s end. Last Thursday alone saw a reset deal from PineBridge Investments Europe Ltd. (the €343 million Euro-Galaxy III CLO); a new transaction from Cairn Loan Investment (the €363 million Cairn CLO VII); as well as refis of two deals from Intermediate Capital Managers: St. Paul’s CLO 2013-4 (€450 million) and St. Paul’s IV (€328 million).
The 50 Euro CLOs that have priced to day totaling €19.8 billion exceeds the 34 deals with a volume of €13.9 billion at this same time last year.