THL Credit affiliate readies its debut middle-market CLO

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THL Credit (Nasdaq: TCRD), a longtime issuer of CLOs backed by broadly syndicated loans to below-investment grade companies, is readying its debut middle market CLO.

Its affiliate THL Credit Advisors is offering $410.5 million of notes backed by loans to small and medium-sized companies in a deal dubbed THL Credit Lake Shore MM CLO 1 Ltd. The $240 million tranche of Class A notes pay 170 basis points over Libor, according to a presale report from Fitch Ratings. The notes have preliminary triple-A ratings from both Fitch and Moody’s Investors Service.

The middle-market debut follows similar first-time efforts in the past year by direct lenders to smaller corporate like THL. Direct lending has been booming as below investment-grade companies increasingly turn to private asset managers as regulated banks cut back on small-business lending. GSO/Blackstone and Bain Capital both issued debut middle-market CLO deals in 2018 after ramping up direct-lending operations. They joined a clubby market that includes other issuers that securitize their small-business loan originations, such as the Carlyle Group, Golub Capital and Churchill Asset Management.

THL Credit Lake Shore will have a short two-year reinvestment period and is non-callable for one year. Its maximum weighted average life is seven years, according to Fitch.

The initial portfolio contains 133 loans with 122 obligors.

The capital structure of the transaction also includes $24 million in Class A-2 notes also carrying a triple-A rating. Only Moody’s rated the subordinate notes, assigning an Aa2 to the $40 million in Class B notes, an A2 to the $28 million in Class C notes, a Baa3 to the $26 million in Class E and a Ba3 to the $22 million in Class E junior secured deferrable floating-rate notes.

THL has some $12 billion of assets under management in CLOs of broadly syndicated loans; most recently, it priced the $610.9 million THL Credit Wind River 2019-3, which is expected to close in May as well.

The BDC's direct lending business includes issuing first- and second-lien secured loans of $5 million to $50 million each, to companies with an enterprise value of $75 million to $250 million. THL Credit in its specialty verticals of business and financial services, consumer and health care and media/technology.

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