Monroe refis 2016 midmarket CLO, shaving 100 bps off senior spread
Monroe Capital has refinanced a middle market CLO is priced two years ago, reducing its funding costs significantly. The spread on the senior Class A notes of the $302 million transaction, Monroe Capital MML CLO 2016-1, now pays Libor plus 120 basis points — 100 basis points less than it did originally.
Both Fitch Ratings and Moody’s Investors Service are rating the refinanced deal.
Monroe also reduced its payment on the Class B notes, with the replacement issue priced at 165 basis points compared to the original 330 basis point spread, as well as the Class C notes that had the spread narrowed to 215 basis points from the original 450-basis-point spread.
The rate reductions reflect the limited remaining shelf life of the transaction, which is extending its noncall period only one year to July 2020 while maintaining the original reinvestment period (ending July 2020) and legal maturity (July 2028), according to Moody’s.
In the refinancing, the floating-rate tranche of Class A notes is sized at $158 million, or 51.8% of the capital stack. A $10 million tranche of Class A-2 notes will carry a fixed-rate coupon of 3.25%. The original transaction in June 2016 had a single, $224 million Class A tranche that made up 55.2% of the capital structure.
The capital stack shift has moved a toward the subordinate tranche, in which $50 million of retained notes will make up 16.4% of the deal, compared with the original 13.3% slice designated for $54 million in equity in the original issue.
According to Fitch, the transaction is currently passing all of its collateral quality and concentration limits tests. The portfolio has a weighted average spread of 5.57%, and a weighted average life of 4.44 years of the assets already in the portfolio.
The collateral includes loans that Monroe originated for small and medium-size enterprise businesses Monroe’s originations are focused on health care, technology, media, retail and consumer products, as well as specialty finance verticals.
BNP Paribas Securities is the underwriter.
The Chicago-based lender had nearly $5.7 billion in assets under management spread among five deals under management (both middle market and BSL) and — entering 2018 — a pair of outstanding CLO warehouses, according to Fitch Ratings.
Monroe Capital issues both middle-market CLOs consisting of non-investment-grade loans from small enterprise corporate borrowers, as well as deals in the broadly syndicated loan arena.