March CLO calendar active; Brigade sells $416.5 million CLO; small banks more exposed to CLOs

By Cristal Cody

Tupelo, Miss., March 20 - CLO issuance continued to climb to more than $19 billion following a $519.25 million transaction on Thursday from CVC Credit Partners, LLC, according to market sources.

BofA Merrill Lynch was the placement agent.

Final pricing details were not available by press time.

CVC Credit Partners, the credit management arm of London-based private equity firm CVC Capital Partners Ltd., was in the market in 2013 with the $617.36 million Apidos CLO IV/Apidos CLO XIV LLC transaction, the $512.7 million Apidos CLO XV/Apidos CLO XV LLC deal and the $625 million Apidos CLO XVI/Apidos CLO XVI LLC offering.

In other new issuance, details emerged on Brigade Capital Management, LLC's $416.5 million deal.

The firm priced the CLO AAA securities at Libor plus 150 basis points, according to an informed source.

CLO issuance began to climb in late February after the market developed a more positive outlook on the Volcker Rule and potential grandfathering of older CLOs, according to informed sources.

The Volcker Rule, announced in December, prohibits banks from owning CLOs that hold bonds, among other provisions.

Fitch Ratings said in a report on Thursday that smaller U.S. banks may sell CLOs amid uncertainty about the treatment under the rule.

"They may take the opportunity to divest now to limit downside risks, even though rules surrounding CLOs could be eased," Fitch said. "Even if an exemption is made so banks can hold CLOs, or if some legacy holdings are temporarily grandfathered as in the Barr Bill approved by the House Financial Services Committee on March 14, small banks may still sell their positions given that secondary market pricing for CLOs has improved."

Smaller banks more exposed to CLOs include Florida Community Bank, with 36% of its securities portfolio in CLOs at the end of 2013; NexBank SSB, with 35% of its securities portfolio in CLOs; Bank of Orchard, with 25% of its portfolio in CLOs; Stifel Bank & Trust, with 23% of its portfolio in CLOs, and Sun National Bank, with 17% of its portfolio in CLOs, according to Fitch.

Florida-based BankUnited, Inc., the holding company of Miami Lakes, Fla.-based BankUnited, N.A., sold its entire $431 million CLO portfolio in December at a loss of $1.4 million.

CLO exposure at the largest banks is less concentrated, Fitch said. JP Morgan Chase & Co. and Wells Fargo & Co., which held more than 70% of the $67 billion of bank-held CLOs at the end of 2013, had CLO portfolios between 8% and 9% of total securities.

Brigade prices $416.5 million

Brigade Capital Management priced $416.5 million of notes due April 17, 2026 in the Battalion CLO V Ltd./Battalion CLO V LLC transaction, according to an informed source.

The CLO sold $241.5 million of class A-1 senior secured floating-rate notes (Aaa//) at Libor plus 150 bps, $45 million of class A-2 senior secured floating-rate notes at Libor plus 215 bps and $5 million of 4.41% class A-2B senior secured fixed-rate notes at the top of the capital structure.

The CLO also sold $33 million of class B senior secured deferrable floating-rate notes at Libor plus 300 bps; $22 million of class C senior secured deferrable floating-rate notes at Libor plus 350 bps; $19.25 million of class D secured deferrable floating-rate notes at Libor plus 475 bps; $11 million of class E secured deferrable floating-rate notes at Libor plus 550 bps and $39.75 million of subordinated notes.

BofA Merrill Lynch was the underwriter.

Brigade Capital Management will manage the CLO, which is backed primarily by first lien senior secured corporate loans.

The New York City-based investment advisor firm brought the $416.5 million Battalion CLO IV Ltd./Battalion CLO IV LLC offering in 2013.

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