Deutsche to price $441.81 million CLO; Dryden closes; BankUnited sells CLOs due to Volcker

By Cristal Cody

Tupelo, Miss., Dec. 19 - A few collateralized loan obligation deals are expected to price before the year closes, according to market sources.

Deutsche Asset & Wealth Management is readying to offer $441.81 million of notes due January 2026 in the Flagship VII Ltd./Flagship VII LLC CLO transaction, according to a market source.

The deal includes $241 million of class A-1 floating-rate notes (/AAA/); $20 million of class A-2 fixed-rate notes (/AAA/); $60.55 million of class B floating-rate notes (/AA/); $29.2 million of class C deferrable floating-rate notes (/A/); $23.1 million of class D deferrable floating-rate notes (/BBB/); $18.6 million of class E deferrable floating-rate notes (/BB/); $9.55 million of class F deferrable floating-rate notes (/B/) and $39.71 million of subordinated notes.

Deutsche Bank Securities Inc. will arrange the transaction.

The deal is expected to close on Feb. 5.

Deutsche Asset & Wealth Management, part of Deutsche Bank AG, last priced a CLO in the Flagship series in 2007 when it sold the $500 million Flagship CLO VI fund.

Dryden CLO closes

Also on Thursday, Pramerica Investment Management Ltd. announced that the €414.75 million Dryden 29 Euro CLO 2013 BV deal closed.

Pramerica Investment Management said the firm's fixed income business, Prudential Fixed Income, has been appointed collateral manager for the CLO.

The European CLO brought in November was the firm's second European transaction in 2013. Prudential Fixed Income also closed three transactions in the U.S. CLO market during 2013.

"We are proud to be among a small group of managers who brought new life to the European CLO market this year," Jonathan Butler, Pramerica's managing director and head of leveraged finance in Europe, said in a release. "The size of the Dryden 29 transaction was raised from an initial €300 million to €415 million due to investor interest."

The Dryden 29 CLO allows for about 30% of the assets to pay a fixed-rate coupon, compared to a traditional industry average of about 5%, the firm said.

Prudential Fixed Income said it used a similar structure for the €300 million Dryden XXVII Euro CLO 2013 BV offering that closed in May.

"Allowing fixed coupon assets sets us apart as a manager and gives us more flexibility to build a robust portfolio for our clients, while carefully managing the risk," Butler said.

Prudential Fixed Income manages more than $9.7 billion in CLO capital from its offices in London and Newark, N.J.

Bank sells CLO portfolio

The Volcker Rule prompted at least one holder to sell an entire portfolio of CLO debt.

BankUnited, Inc. said in a statement that on Tuesday it sold its portfolio of CLOs with an amortized cost basis of $431 million at a net loss of about $1.4 million.

The national bank holding company also sold private label re-securitized real estate mortgage investment conduits with an amortized cost basis of about $119 million to a gain of about $3.8 million.

"The sales of the CLOs and the Re-Remics were prompted by the recent release of the Volcker Rule and its potential impact on BankUnited's investment activities," BankUnited said in a statement. "The company continues to evaluate its remaining investment holdings in light of the Volcker Rule."

BankUnited is the bank holding company of Miami Lakes, Fla.-based BankUnited, NA.

The Volker Rule issued on Dec. 10 prohibits banks from short-term proprietary trading and imposes limits on banks' investments in hedge funds or private equity funds. Under the rule, CLOs that hold securities are considered covered funds and banks cannot hold ownership interests in them.

Elliot Ganz, general counsel of the Loan Syndications and Trading Association, said on Wednesday that about 60% of existing CLOs hold small amounts of securities.

Ganz said the association had not seen a lot of selling due to the rule and cautioned that more clarity was needed before holders took action, with the agency considering drafting a letter to regulatory bodies for rule clarification.

The Federal Reserve has set bank compliance by July 21, 2015.

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