Senior secured loans to airlines, hospitality and leisure companies, media, road and rail, and chemical companies will secure $437.8 million in collateralized loan obligations (CLOs) issued to investors from first-time CLO manager Northwestern Mutual Investment Management Co.
At most, 60% of the loans in the collateral pool, extended to 198 obligors, can be covenant-lite, but the ratio doesn't seem to pose an issue to the CLOs from a credit perspective, according to a pre-sale report from S&P Global Ratings. Compared with other broadly syndicated CLO deals, 720 East has a lower scenario default rate, plus a higher weighted average (WA) recovery rate, showing a stronger underlying portfolio from a credit standpoint.
The notes are slated to pay interest over the three-month Secured Overnight Financing Rate (SOFR), with spreads that range from 2.70% on the 'AAA' rated class A notes to 9.75% on the 'BB-' rated class E deferrable notes.
When stacked up next to other similar deals, 720 has a lower total leverage rate and a lower rate of 'AAA' subordination. It does have a higher WA cost of debt, at 3.33%, compared with 2.85%, which is the average for the broadly syndicated deals that S&P rated in the three-month period that ended October 31.
J.P. Morgan is the placement agent on the transaction, which is slated to close on December 20.
Its 'AAA' subordination level is 37.88%, compared with 36.38% for the three-month average. As for 'BBB' subordination, 720 East's ratio was 14.58%, compared with the three-month average of 13.15%.
The deal's reinvestment window closes on Jan. 20, 2027. It is also a diversified pool of loans, not only financing close to 200 obligors, but the average obligor holds just 0.51% of the total pool balance, while the largest obligor holds 1.29%. Indeed, the collateral pool's top five obligors come from a range of industries: airlines, hotels, restaurants and leisure; media; road and rails and chemicals.
S&P expects to assign ratings of 'AAA' on the class A notes; 'AA' on the class B notes; 'A' on the class C deferrable notes; 'BBB-' on the class D deferrable notes; and 'BB-' on the class E deferrable notes.
A $51.1 million subordinated class will be retained.
