PGIM trims reinvestment period in another CLO refi
For the second time this year, PGIM is taking advantage of a CLO refinancing to not only lower its funding costs but also trim the reinvestment period.
Dryden 36 Senior Loan Fund, originally issued in 2014 and previously refinanced in December 2016, is also being upsized. PGIM Fixed Income, a subsidiary of Prudential Global Investment Management, is issuing replacement notes totaling $712.9 million, according to a presale report from S&P Global Ratings. The replacement Class A notes pay 128 basis points above three-month Libor, compared with 143 basis points for the notes being replaced. That new spread is also well inside the average of 144 basis points for new CLOs issued last week, according to Deutsche Bank.
As part of the second refinancing. PGIM has moved up the amortization period by six months to April 15, 2021, from the original Oct. 15, 2021 that was negotiated in 2016 (representing a five-year reinvestment period at that time).
That is the same strategy PGIM employed in a second refinancing of its $1 billion Dryden 33 Senior Loan Fund in February. After shaving six months off a previously extended reinvestment period, the manager priced those replacement senior notes at more than 20 basis points inside the existing rates from a previous refinancing. PGIM was also inside of the market average for AAA spreads at that time, as well.
Reinvestment periods allow managers to apply principal proceeds from note payments into buying and replacing loan assets in an actively managed, open-market CLO in order to improve the deal's credit quality.
Shortened deal lives for CLOs has been in vogue in 2019, particularly in new-issue CLOS in which more than one-third of deals have had reinvestment periods under three years. Investor demand, while still strong, has cooled from the fervor in recent years for CLO paper, and even investors are indicating a preference for keeping deals brief this year.
For Dryden 36, PGIM has increased the size of the Class A notes to $434 million from the $372 million in replacement notes issued in the December 2016 refinancing.
The remaining five classes of notes are also expected to receive a lower spread when issued, according to S&P.
The original Dryden 36 refinancing noncall period ended in January, but has now been extended to April 2020.
PGIM, one of the market’s largest CLO managers, oversees 26 U.S. CLOs with a total volume of $23.7 billion in assets under management.