Onex Credit Partners took an unusual step of agreeing to a pay a higher spread on the senior, AAA-rated notes in the reset of a 2014 collateralized loan obligation in exchange for extending the life of the deal.
But the deal on behalf of the asset management arm of the Canadian private equity firm was unusual to begin with.
According to Thomson Reuters LPC, Onex reset its OCO CLO 2014-5 deal last Friday with a new price of 108 basis points over Libor for the Class A notes, representing 56.4% of the portfolio notes. That was 8 basis points wider than the original 100 basis points over Libor. In other words, the deal was reset to increase, rather than lower, funding costs on the senior tranche.
But Onex also shaved the spread significantly on three classes of subordinate notes. It also, as well, as gain a new five-year reinvestment period for the deal.
Onex’ new 108-basis-point rate is not out of line with other recent refinancings of broadly syndicated loan CLOs this year – deals that tightened up to 72 basis points generally ranged from the 140s to 190s to begin with, according to Thomson Reuters LPC data.
Onex CLO 2014-5’s 100-basis-point coupon was already below the average coupon rate of 133.7 basis points over Libor for the $16.6 billion of CLO deals that have been refinanced or reset so far in 2017, according to data from Thomson Reuters LPC.
Onex achieved that rate in 2014 because a large portion of the original collateral for the deal loans with original issue discounts. CIFC had a similar experience when it refinanced its CIFC Funding 2014 deal in January by accepting a small, 5-basis-point spread increase in the AAA tranche to 110 basis points from a below-market 2014 rate of 105 basis points over Libor.
“I would expect to see a small handful of other deals like this that were also sold at the discount” in 2014, said a market observer, speaking on background.
Onex reduced its margins on the Class AA notes to 140 basis points form 172; the single-A trance to 180 basis points from 269; and the BBB margin lowered to 290 basis points from 325, according to Thomson.
The deal also, ironically, was reset on Friday with a new $51.5 million risk-retention tranche – the same day the U.S. Circuit Court of Appeals in Washington ruled that open market CLOs are not subject to risk-retention requirements.