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Sound Point debuts in European CLO issuance with €507.5M deal

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Sound Point Capital is printing its first-ever European CLO, in a transaction that also makes the New York-based alternative credit strategies firm the only debut issuer for the EU region so far in 2019.

Sound Point Euro CLO 1 Funding DAC (designated activity company) is a €507.5 million securitization of mostly senior secured loans, although the collateral also includes senior unsecured, mezzanine and second-lien debt, according to a presale report from Fitch Ratings.

Eleven tranches of floating-rate and fixed-rate notes will be issued; at the top of the capital stack is a €310 million Class A tranche priced at 116 basis points over three-month Euribor. That's wide of the average triple-A spread at the end of March for European managers of 110.4 basis points, according to Refinitiv.

The unusually large number of tranches is the result of a dividing of the AA-rated Class B and A-rated Class C notes into a total of six tranches. In addition to a pair of fixed- and floating-rate tranches in the B and C classes, both bands also included a third variable-rate tranche with a step-up rate that kicks in after the two-year noncall period of the deal expires.

The Class D (BBB-), Class E (BB-) and Class F (B-) are each a single fixed-rate tranche. Sound Point is also marketing $2.5 million in Class X notes that are paid off solely through interest payment proceeds.

The transaction has a 4.5-year reinvestment period.

The deal will be managed by Sound Point CLO C-MOA LLC, an affiliate of Sound Point’s U.K. affiliate.

Sound Point had more than $19.8 billion in assets under management at Feb. 28, according to the company’s website.

After a slow start to 2019 with one primary issue deal in January, Refinitiv data shows European CLO activity picked up in February with €3.3 billion in deals, followed by €3.9 billion in primary issuance volume in March.

An additional four European CLOs have priced in April totaling €1.7 billion in April, according to JPMorgan. Including Sound Point’s transaction, European issuance volume year-to-date €9.4 billion, trailing the 2018 pace of €12.9 billion through mid-April of last year.

Sound Point’s recent U.S. activity included the issuance of the $508.8 million Sound Point CLO XXII in January via Bank of America Merrill Lynch, and the March refinancing of its Sound Point XII CLO through Citigroup.

The Sound Point XII refi added new restrictions on the manager investing in assets from tobacco-related industries, which are excluded as qualified investments under the European Union's proposed environment, social and governance (ESG) standards for green-friendly investing.

Fitch's presale report on the new European deal did not disclose whether the same restrictions will apply to Euro CLO 1 Funding DAC.

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