Zais Group marketing a $534M refi of its debut 2014 deal
Zais Group LLC is proposing to refinance its debut collateralized loan obligation from 2014 that went through slight credit deterioration by early last year, according to a presale report from S&P Global Ratings.
Zais CLO 1 is a $534.8 million broadly syndicated CLO portfolio through Zais Leveraged Loan Manager LLC that is extending the original March 2014 transaction with a new one-year noncall period and the extension of the original five-year reinvestment period through April 2020.
The original dual Class A-1 and A-2 senior note structure has been expanded to four tranches, including two triple-A rated tranches: a $290 million Class A1A-R notes offering (with an expected coupon of 115 basis points over three-month Libor) and $25 million in Class A1B-R notes priced at a spread of 150 basis points.
Zais, based in Red Bank, N.J., is also issuing two AA-rated tranches – $40 million in A2A-R notes (with a 180 basis-point spread) and a 4.8% fixed-rate tranche of $30 million in Class A2B-R notes.
Proceeds will pay off the original $226.5 million in Class A-1 and A-2 notes, as well as the balance of a combination notes tranche that included both Class A-1 and A-2 notes that originally totaling $166.4 million.
The transaction will also have four tranches of junior notes, including a single-B rated Class E-R series of notes sized at $7.5 million.
As part of the refinancing, Zais is nearly tripling the amount of subordinate residual notes to $70 million from $25.5 million.
Last year, S&P reaffirmed the ratings on the original tranches following a trustee report noting a mixed credit performance on the underlying leveraged loan assets.
S&P said the deal had gained seasoning with a one-year decrease in the weighted average life to 4.85 years, therefore decreasing its credit risk profile and “provided more cushion to the tranche ratings, In addition, the number of obligors in the portfolio has increased during this period, which contributed to the portfolio’s increased diversification.”
However, the deal’s exposure to defaulted assets had grown to nearly $1 million, and the percentage of loans rated CCC+ and below had increased to $18.2 million. While the deal was maintaining all coverage tests, S&P had cautioned that "any significant deterioration in these metrics could negatively affect the deal in the future, especially the junior tranches."
Although the transaction is refinancing what was Zais’ debut CLO, the manager has previously refinanced its $329 million Zais CLO 2 and $404 million Zais CLO 3 deals from 2014 and 2015, respectively.