Apollo brings market's third euro CLO; risk-retention compliance could slow deal pace

By Cristal Cody

Tupelo, Miss., April 12 - Apollo Global Management, LLC priced €325 million of floating-rate notes due 2025 in the third collateralized loan obligation structure sold this year.

"There's a real willingness for debt investors to invest in European CLOs," a market source said on Friday. "There's pent-up demand with no CLO paper to invest in for many years. The levels from which the debt is clearing is really not that far off from where it is in the U.S."

The European CLO market reopened in February with Cairn Capital Ltd.'s sale of €300.5 million of notes due April 20, 2025, followed by Prameria Investment Management Ltd.'s €300 million offering of notes due June 25, 2025.

Cairn CLO III BV sold the AAA-rated €181.5 million tranche of senior secured floating-rate notes (Aaa/AAA/) at six-month Euribor plus 140 basis points in February, while Pramerica's Dryden XXVII Euro CLO 2013 BV priced its top-rated portion also at a spread of 140 bps plus Euribor.

Other managers including Carlyle, KKR Asset Management, New Amsterdam Capital and 3i are reported to be looking at new vehicles, but the 5% risk retention requirement likely will keep the market from expanding quickly, according to sources.

"There's the potential for the European market to grow, but any short-term growth will be somewhat paced by the willingness to provide risk retention equity," one source said.

"Most European debt investors are requiring risk retention in Europe in order to invest," the source said. "If you have to do certain things at the equity level to satisfy those requirements and those things are difficult to do, either by the manager or a third party, that will provide a natural restraint on the growth of the market."

Market sources expect U.S. CLO issuance to slow over the year, though new offerings are projected at about $75 billion, the most since 2009.

"U.S. markets are slowing down a little bit because the assets have become quite expensive and so have the liabilities, making the returns a little tighter," a market source said. "Until we see some sort of adjustments to the assets or liabilities, we're going to see a little more slower pace in the U.S."

Apollo upsizes

Apollo's ALME Loan Funding 2013-1 Ltd. upsized the transaction from an initial structure of €306.5 million, according to a market source.

As part of the deal, the managed cash-flow CLO ALME Loan Funding 2013-1 Ltd. priced €195 million of class A-1 senior secured floating-rate notes (Aaa), a source said.

The initial structure included €180 million of class A-1 floating-rate notes; €25 million of A-2 floating-rate notes; €25 million of class B floating-rate notes; €14 million of class C floating-rate notes; €11 million of class D floating-rate notes; €12 million of class E floating-rate notes; and an equity tranche of €39.5 million, according to the market source.

Final pricing terms were not immediately available.

Citigroup Global Markets Inc. arranged the offering.

The CLO will be listed on the Irish Stock Exchange.

Apollo Credit Management, LLC will manage the CLO, which will invest mostly in European corporate leveraged loans.

Apollo has priced about $2 billion in four CLO deals since the start of 2012 and has 28 CLOs totaling nearly $15 billion in assets under management.

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