Neuberger Berman marketing third 2017 CLO in $561.3m deal

Neuberger Berman is putting together its third CLO of 2017, in another highly diverse deal that is pricing at the tight end of the market.

Neuberger Berman Loan Advisers CLO 26 is a $561.3 million broadly syndicated collateralized loan obligation that features a $338.25 million AAA tranche – expected to price at 117 basis points over three-month Libor, according to a pre-sale report issued by S&P Global Ratings Wednesday.

The deal from the Dallas-based asset manager, an affiliate of Neuberger Berman Investment Advisors, is about three-quarters ramped up with $428.7 million in identified collateral; the deal will has loans from 172 obligors on its target list for completing the pool’s makeup. The portfolio will be issued with a two-year non-call period, a five-year reinvestment period and a covenanted weighted average life of nine years.

Even though the deal is in rare company with a AAA price inside of 120 basis points, the CLO is being marketed with a lower weighted average spread (WAS) than other rated deals in the market. CLO 26 has a thin WAS of 3.34%, under both the three-month peer average of 3.64% and the 3.44% it achieved with Neuberger Berman Loan Advisors CLO 25.

One aspect it lacks in comparison to CLO 25 is investment in distressed loans: according to S&P, both the initial and targeted collateral in the pool include no C-rated loans that are near default status. Most deals have a 7.5% concentration limit of C-rated loans.

The report did not indicate if CLO 26 included provisions in the prior deal that allowed Neuberger Berman "broad discretion" to amend the deal for regulatory compliance, or to apply trading gains to interest instead of principal proceeds, as noted by Moody's Investors Service in its analyis of the prior deal.