CLO pipeline accelerates; KKR, Ares market CLOs; issuance to date 41% higher than 2013

By Cristal Cody

Tupelo, Miss., Nov. 24 – CLO primary market activity is expected to stay busy during the first half of the week and then quiet for the Thanksgiving Day holiday, according to market sources.

“It will probably be a race to the finish through December,” one market source said. “Some people are rebalancing their books at this time of year, and people will start shutting down that third week of December.”

Ares Management LLC joined the pipeline with a $511.23 million deal, while KKR Financial Advisors II, LLC plans to bring $415.6 million of CLO notes, according to market sources.

“CLO supply is ending November on a strong note as arrangers and managers clear the deck ahead of Thanksgiving,” J.P. Morgan Securities LLC analysts said in a market note.

Year-to-date global CLO issuance of $137.4 billion, including refinancings, has surpassed the $135 billion global deal record set in 2006, the analysts said.

CLO issuance to date is 41% higher than the $97.4 billion priced in fiscal year 2013, according to the note.

JPMorgan said that 2014 is the “only year with average monthly U.S. CLO issuance exceeding $10 [billion], with eight months seeing $10 [billion-plus] issuance versus four months in 2006.”

The CLO market received some buzz on Monday on news that the Loan Syndications and Trading Association has filed a lawsuit against the Federal Reserve and the Securities and Exchange Commission over the finalized CLO risk retention rules, sources said.

Under the finalized Dodd-Frank Act requirements released in October, CLO managers must retain 5% capital of deals priced in 2016. U.S. CLOs brought before Oct. 21, 2016 will be grandfathered.

Ares offers $511.23 million

Ares Management plans to price $511.23 million of notes due Nov. 15, 2025 in the Ares XXXII CLO Ltd./Ares XXXII CLO LLC deal, according to a market source.

The offering includes $309 million of class A-1 senior floating-rate notes (Aaa/AAA/); $66 million of class A-2 senior floating-rate notes (Aa2); $32.5 million of class B deferrable floating-rate notes (A2); $29 million of class C deferrable floating-rate notes (Baa3); $22 million of class D deferrable floating-rate notes (Ba3); $11.5 million of class E deferrable floating-rate notes (B2) and $41.23 million of subordinated notes.

Deutsche Bank Securities Inc. is the placement agent.

Ares CLO Management XXXII, LP will manage the CLO.

Ares Management previously priced the $1.26 billion Ares XXXI CLO Ltd./Ares XXXI CLO LLC deal on July 30 and the $360.76 million Ares XXX CLO Ltd. transaction on May 8, 2014.

The alternative asset management firm is based in Los Angeles.

KKR to price $415.6 million

KKR Financial Advisors II plans to bring $415.6 million of notes due Dec. 15, 2026 in the KKR CLO 10 Ltd./KKR CLO 10 LLC transaction, according to a market source.

The deal includes $247 million of class A senior secured floating-rate notes (Aaa//AAA); $32 million of class B-1 senior secured floating-rate notes (/AA/); $20 million of class B-2 senior secured fixed-rate notes (/AA/); $25 million of class C-1 senior secured deferrable floating-rate notes (/A/); $5 million of class C-2 senior secured deferrable fixed-rate notes (/A/); $20 million of class D senior secured deferrable floating-rate notes (/BBB/); $19 million of class E senior secured deferrable floating-rate notes (/BB/) and $47.6 million of subordinated notes.

BNP Paribas Securities Corp. is the placement agent.

KKR Financial Advisors II will manage the CLO, which is backed primarily by broadly syndicated senior secured loans.

KKR Financial Advisors most recently priced the $518 million KKR CLO 9 Ltd./KKR CLO 9 LLC transaction on Aug. 7.

The subsidiary of KKR Asset Management, LLC brought two CLO deals in 2013.

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