Alcentra sells $627 million CLO; Volcker update 'not a solution,' bank sell-off feared

By Cristal Cody

Tupelo, Miss., April 8 - Alcentra NY LLC priced a $627 million collateralized loan obligation deal on Tuesday, while CLO market participants unhappily digested the Federal Reserve's Volcker Rule update, according to informed sources on Tuesday.

Alcentra priced the AAA notes in the Shackleton 2014-V CLO Ltd./Shackleton 2014-V CLO LLC deal at Libor plus 150 basis points, on the tight side of recent issuance, according to an informed source.

Most market activity focused Tuesday on the updated Volcker Rule implications for CLOs, sources said.

The Federal Reserve announced late Monday it will give banks a two-year extension to comply with the regulation, which prohibits banks from owning CLOs that hold bonds.

The Volcker Rule, announced in December and originally set to take effect in 2015, will be extended with two one-year extensions to July 21, 2017. Only CLOs held by banks at the end of 2013 are eligible for the extension.

"Generally speaking, this is not a solution to the problem of bank ownership of CLO tranches under Volcker," Wells Fargo Securities, LLC senior analyst Dave Preston and associate analyst Jason McNeilis said in a note on Tuesday.

"Market participants still fear that banks will move to sell to avoid Volcker non-compliance," the analysts said. "This statement reduces the likelihood of such an event, but does not completely eliminate it, as other forms of regulatory relief may have."

Banks hold about $70 billion of CLOs, according to the Loan Syndications and Trading Association.

Before the rule was announced, about 60% of existing CLOs held small amounts of securities, according to the LSTA.

CLO transactions priced in the U.S. market in 2014 have been Volcker-compliant with collateral consisting of loans and eligible investments instead of bond buckets, according to market sources.

Alcentra prices $627 million

CLO manager Alcentra NY priced $627 million of notes due May 18, 2026 in the deal via Morgan Stanley & Co. LLC, according to an informed source.

The Shackleton 2014-V CLO priced $4 million of class X senior secured floating-rate notes (Aaa) at Libor plus 100 bps and $366 million of class A senior secured floating-rate notes (Aaa) at Libor plus 150 bps at the top of the capital structure.

The CLO also sold $68 million of class B-1 senior secured floating-rate notes at Libor plus 200 bps; $10 million of 4.225% class B-2 senior secured fixed-rate notes; $41 million of class C-1 mezzanine secured deferrable floating-rate notes at Libor plus 295 bps; $10 million of 5.4% class C-2 mezzanine secured deferrable fixed-rate notes; $33 million of class D mezzanine secured deferrable floating-rate notes at Libor plus 365 bps; $27 million of class E junior secured deferrable floating-rate notes at Libor plus 460 bps; $13.5 million of class F junior secured deferrable floating-rate notes at Libor plus 520 bps and $54.5 million of subordinated notes.

The CLO, backed primarily by broadly syndicated first-lien senior secured corporate loans and eligible investments, has a two-year non-call period and a four-year reinvestment period.

Alcentra was in the market in 2013 with the $525.5 million Shackleton 2013-III CLO Ltd./Shackleton 2013-III CLO LLC offering and the $438.6 million Shackleton 2013-IV CLO Ltd./Shackleton 2013-IV CLO LLC deal.

The sub-investment-grade debt manager is a subsidiary of BNY Alcentra Group Holdings Inc., which is majority owned by the Bank of New York Mellon Corp.

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