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In 1st deal as Eldridge affiliate, Maranon refis middle market CLO

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Maranon Capital, which last month became a majority-owned affiliate of private equity firm Eldridge Industries, is refinancing a three-year-old middle-market CLO through a reissued notes transaction.

The Chicago-based firm is sponsoring the $410 million Maranon Loan Funding 2019-1, which will contain the assets initially included in a December 2016 Maranon collateralized loan obligation transaction, according to reports from S&P Global Ratings and Morningstar Credit services.

The 2016 transaction is one of two CLOs of small- and medium-enterprise loans totaling $915.1 million that Maranon has under management, according to S&P Global Ratings.

With history as a guide, Maranon’s output could increase significantly under Eldridge management. Since launching a partnership with in 2017 with CBAM, an alternative asset management firm, that firm has issued nine CLOs totaling more than $9 billion.

CBAM was the leading issuer by volume of primary-market broadly syndicated CLOs with $5.1 billion in deals in its debut year.

Maranon and Eldridge established a partnership in 2015 that has since invested in over $3.7 billion in small- and medium-enterprise credit investments and loans, according to an Eldridge release. In February, Eldridge announced it was buying out the firm’s equity stakes from Maranon co-founder and managing director Tom Gregory, who opened the firm in 2008.

Eldridge is led by Chief Executive Todd Boehly, a former Guggenheim Securities president who built that firm's credit investment business. The Maranon takeover is the latest skin on the wall for Eldridge in its foray into financial services. Since being established in 2015, Eldridge has undertaken majority investments with insurance carrier Security Benefit, global real estate firm Cain International and CBAM.

Maranon Loan Funding 2019-1 includes three tranches of notes and loans with preliminary triple-A ratings from S&P and Morningstar. The $135 million Class A-1a bond tranche has an expected spread of 185 basis points over three-month Libor, and a $32.5 million Class A-1b notes offering has a fixed rate of 4.04%.

The $30 million Class A-1l loans tranche has a floating rate spread of 185 basis points, as well. The loans are eligible to be converted to notes following the April 15 expected closing of the transaction, according to presale documents.

The transaction includes a four-year reinvestment period and a two-year noncall.

Ratings agency presale reports show Maranon’s deal was the third middle-market CLO to be launched into market in March.

Cerberus Business Finance, an affiliate of Cerberus Capital Management, is sponsoring a $555 million CLO of small- and medium enterprise loans. Cerberus Loan Funding XXV L.P. has a triple-A spread of 153 basis points over Libor, according to a presale report last Friday from Moody’s Investors Service.

THL Credit Advisors broke a first-quarter logjam in middle-market deals when it priced the firm’s first-ever SME CLO, the $410.5 HL Credit Lake Shore MM CLO 1 Ltd., on March 8 via Deutsche Bank.

Middle-market CLO issuance had been off to a slow start in 2019, with only one new-issue deal (Alliance Bernstein’s $348.9 million ABPCI Direct Lending Fund CLO II Ltd) and one pricing reset on the year, according to a March 11 Wells Fargo report.

But Wells believes that demand from investors for middle-market CLO paper, in particular from Japanese banks, “appears to be strong,” with at least four Japanese banks currently invested in the U.S. middle-market CLOs. Wells also reports at least three new middle-market CLO managers are expected to market first-time deals in 2019.

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