Octagon's fourth CLO of 2019 to be sourced entirely by asset transfers

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Octagon Credit Investors is taking an unusual path to print its fourth new-issue open-market CLO for 2019: It will close the deal before ramping up its assets.

According to Moody’s Investors Service, the $505 million Octagon Investment Partners 20-R will be backed by a portfolio of $500 million in leveraged loans that are to be transferred from an outstanding undisclosed CLO deal.

None of the loans have yet to be assigned to the collateralized loan obligation; rather, Octagon plans to build the portfolio almost entirely from participation agreements to transfer the loans from a prior deal.

Moody’s said the entire identified portfolio for Octagon 20-R - 88% of the targeted asset level - involve assets that are expected to be reassigned.

Still, such arrangements carry some risk, with the possibility "that some portion of the participated assets will ultimately not be elevated to assignments," Moody's stated in a presale report.

The report gave no indication if the assets were from a third-party firm or were being transferred from another Octagon transaction (the manager oversees a numerically similar 2014-vintage transaction, Octagon Investment Partners XX, which was refinanced in 2017). However, Moody's expects "that based on the asset purchase and assumption agreement the seller and the CLO will use their commercially reasonable efforts to elevate the participations to assignments.”

Octagon has seven CLOs under management totaling $22.3 billion, according to Moody’s.

The year, Octagon has already printed three deals: the $606.3 million Octagon Investment Partners 40 in January, the $501.9 million Octagon Investment Partners 41 in March, and $503 million Octagon Investment Partners 42 pricing in April (according to a report from Deutsche Bank).

Octagon 20-R will have seven classes of notes, including a $305 million Class A-1 notes tranche with an assumed price of 133 basis points over Libor, according to Moody’s.

Octagon has also been busy on the refinancing front. The firm reworked its $727.7 million Octagon Investment Partners XXI in January and the $808.7 million Octagon Investment Partners XXIV in March.

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