Oak Hill carrying Euro CLO AAA spreads back into 90s
Oak Hill Advisors (Europe) is looking to reverse a recent widening of spreads on European CLOs.
According to a presale report from Moody’s Investors Service, the €411.7 million Oak Hill European Credit Partners VII Designated Activity Company (DAC) transaction includes a €240 million triple-A tranche of notes with an assumed coupon of 95 basis points over three-month Euribor.
That level is inside of the average spread of 100 basis points for the senior tranches European CLOs printed in September. It's also inside the spread on the only other European CLO to price in October, Bain Capital Euro CLO 2018-2 (priced Oct. 3) pays 100 basis points over Euribor to holders of its senior notes.
The 100-basis-point spread average was also the widest monthly mark for European CLOs since November 2016, according to Thomson Reuters LPC. The September spread also marked the sixth time in seven months that AAA-rated spreads increased month over month for the European CLO market.
Both Moody’s and Fitch Ratings are rating the deal, which is being placed by JPMorgan.
The portfolio represents the fifth European deal for the London office of New York-based Oak Hill Advisors. Oak Hill is expected to close the deal later this month with a 4.5-year reinvestment period and an 8.5-year weighted average life.
The collateral pool is likely to have high concentrations of French and German corporate loans (more than 20% apiece). But Fitch believes up to 10% will be Italian assets, due to a deal allowance for investing in assets domiciled in countries with a country risk ceiling rating below AAA.
(Country ceiling ratings generally measure the maximum credit rating that a debt issuer or a structured-finance transaction which receives its cash flow within a particular country can achieve.)
Oak Hill’s deal is among only three transactions to close this month, including refinancing activity. The European CLO market had ticked up slightly in September with four new issues pricing with a total of €1.6 billion, according to JPMorgan.
Year-to-date 2018 volume stands at €20.4 billion through Oct. 10, compared with €12 billion over the same period in 2017.