PGIM, Barclays ready rare pound-denominated European CLOs
Two European CLOs launched last week, one by PGIM and one by Barclays, have notes denominated in British pound sterling.
While its not unusual for European collateralized loan obligations to contain some sterling-denominated collateral, CLO notes are almost always denominated in euros. PGIM and Barclays are the first to offer sterling-denominated notes this year, according to Thomson Reuters LPC.
The £325 million Dryden 63 CLO managed by PGIM represents the first-ever pound-sterling CLO rated by S&P Global Ratings, although the agency has rated prior CLOs with underlying loans denominated in British pounds. The deal is arranged by Natwest. All six classes of notes to be issued are denominated in sterling, The £171 million Class A notes, which are rated AAA, pay a spread of 125 basis points over three-month or six-month British-pound Libor. It is the only deal among PGIM’s 12 European CLOs not denominated in euros. PGIM is the principal asset management business of Prudential Financial.
While the notes are in pounds, up to 80% of the collateral can be loans or high-yield bonds denominated in euros, according to S&P’s presale report.
Barclays’ £4.5 billion (€5.06 billion) Sirius Funding PLC is issuing three equally sized tranches of notes in three different currencies: pounds, euros and U.S. dollars, that are all rated Aaa by Moody's Investors Service. Each of the tranches is backed by loans in the same currency. There is also a £1.125 billion tranche of subordinate notes that is being retained by the sponsor.
The majority of loans in the collateral are unrated, but have been analyzed through an equivalent Moody’s ratings process using Barclays’ internal rating tiers in issuing the loans.
The Class A1, A2 and A3 notes in Sirius will all be priced at a spread of 140 basis points, but each will be pegged to different benchmarks. The Class A1 euro notes will be priced to Euribor; the U.S. dollar Class A2 notes to U.S. dollar Libor and the Class A3 pound-sterling notes to the three-month British pound Libor.
The portfolio will be actively managed for two years.
Quarterly interest payments will be equally disbursed to each class during the reinvestment period, but principal payments during amortization will be repaid solely with proceeds from loans of the same currency.
Should any of the classes of notes be paid off early, any remaining loans of that currency will be converted to the currency of one or two of the remaining notes for redemption.