A portfolio comprised of secured loans, cash and eligible investments, largely made to U.S. operators in industries such as professional services and personal products, will collateralize a $304 million collateralized loan obligation (CLO).
BNP Paribas is the note purchaser on the transaction, PennantPark CLO IV, with Wilmington Trust acting as trustee and PennantPark Senior Loan Fund, will service the deal’s collateral, according to a pre-sale report from S&P Global Ratings.
The transaction, expected to close on March 2, has a non-call period end date of two years from the expected closing, a reinvestment period end date of April 15, 2026, and a stated maturity date of April 15, 2034. S&P noted that up to 15% of the loans in the collateral pool can be covenant-lite.
The collateral pool has a weighted average (WA) cost of debt amounting to 2.37%. The ‘AAA’ notes and the ‘BBB’ notes have subordination levels of 39.8% and 19.0%, according to S&P.
The portfolio, highly diversified, has 52 obligors, and is highly diversified. The average obligor accounts for 1.9% of PennantPark CLO’s collateral pool, with the largest making up just 2.19% of the deal, the rating agency said.
Among CLOs, S&P says it views the credit impact of their exposure to environment credit factors as below average. Transaction documents prohibit assets related to all or a portion of industries including thermal coal mining, controversial weapon production or trading, hazardous materials, adult entertainment and tobacco.
S&P said it expects to assign ‘AAA’ ratings to two classes of A-1a notes; one with a balance of $91 million and another with $30 million. The rating agency also expects to assign ‘AAA’ ratings to the $50 million A-1b class and the $12 million A-2 class. After that, ratings range from ‘AA’ on the B notes to ‘BBB-’ on the class D notes.
Virtually all of the notes are priced to the three-month SOFR, except for the A-1b class, which has a 3.45% interest rate, and the subordinate notes, which will pay a residual, S&P said.
