Oaktree Capital Management is refinancing its first CLO of 2018 - less than two weeks before the year comes to and end.
It is reducing the yield spread on the senior tranche of notes to be reissued in Oaktree EIF III Series 1 to a level inside the going rate for new deals and other CLO refinancings, in part because the life of the deal is not being extended. Investors will accept a lower return for an asset with a shorter duration.
The $601.7 million transaction was originally issued in December 2016 and just exited its noncallable period; the new notes to be issued cannot be called for another year and the reinvestment period is not being extended at all. The manager can only sell loans in the pool of collateral or add new ones until April 2020.
Oaktree's refinancing is its first since the fourth quarter of 2017, when the Los Angeles-based manager repriced the $971.2 million Oaktree CLO 2015-1. In that deal, Oaktree also limited the noncall extension to one year past the original 2017 deadline.
The firm has traditionally had low engagement in refinancing. Including EIF III Series 1, Oaktree has only refinanced six of its 14 CLOs issued since 2012. According to ratings agency reports, the agency has five existing deals past noncall dates - including two that were previously refinanced with similarly limited extensions of noncall and reinvestment windows.
Five CLOs issued between 2012 and 2015 were paid down rather than refinanced.
With a weighted average life extension of just two years to 5.32 years, investors in Oaktree EIF III Series 1 agreed to a coupon of 108 basis points over Libor for a $372 million Class A-R series of replacement notes, according to a presale report from S&P Global Ratings. The original price on the Class A tranche was 141 basis points over Libor.
By comparison, spreads on newly issued, Triple A rated CLO securities were 119.7 basis points in November, according Refinitiv. CLO managers conducting refinancings and resets shaved their spreads to 114.8 basis points on average from 129.2 basis points.
Oaktree's enters a refi market that has seen $148 billion worth of CLO portfolios either refinanced or reset with new terms and tenors this year through November.
S&P is not rating the subordinate notes in Oaktree EIF III Series I; however in its presale report the raitng ageny noted that the $81 million Class B-R and $36 million C-R notes are also expected to price at reduced (but as-yet-to-be-determined) spreads. In addition, the original pari passu C-1 and C-2 notes are being replaced by a single Class C-R tranche.
The original subordinate tranche was sized at $112.7 million.
Oaktree EIF III Series 1 is among eight outstanding U.S. CLOs under management with Oaktree Capital, according to Fitch. Oaktree also oversees four European CLOs.
Another firm conducting a limited refinancing is Saratoga Investment Corp. According to ratings agency reports, Saratoga Investment Corp. CLO 2013-1 will also only have one additional year of noncall protection through December 2019. But the firm is choosing to apply two additional years of reinvestment for its manager.
Press releases from Fitch Ratings and Moody’s Investors Service did not state the begin-and-end dates for the new reinvestment period, but the transaction – which is the second financing for the Saratoga deal – would be the second reinvestment period extension for a deal that originally was supposed to exit its investable period in October 2016.
Fitch and Moody’s are issuing ratings on the triple-A senior floating- and fixed-rate class A note tranches for Saratoga Investment Corp. CLO 2013-1. Moody’s will also rate two other classes of secured notes and additional subordinate notes to raise proceeds to redeem the notes issued from the first refinancing from November 2016.
Saratoga CLO 2013-1 was originally closed in October 2013.
