Benefit Street Partners CLO pricing emerges; Jamestown CLO on tap; secondary spreads wider

By Rebecca Melvin

New York, June 30 – Pricing emerged on another CLO deal on Tuesday, and another deal has launched for pricing in July.

Benefit Street Partners LLC priced a $512.6 million collateralized loan obligation transaction. The Benefit Street Partners VII Ltd./Benefit Street Partners CLO VII LLC sold $314.1 million of class A-1 floating-rate notes at Libor plus 149 basis points. J.P. Morgan Securities LLC was the placement agent. And Benefit Street Partners, the New York City-based credit investment arm of Providence Equity Partners LLC, will manage the CLO.

Meanwhile, 3i Debt Management U.S. LLC plans to price a new arbitrage cash flow CLO called Jamestown CLO VII Ltd./Corp., including a tranche of $322.5 million class A-1 notes (//AAA) at the top of the capital structure.

In the secondary market, activity has slowed over the past week, with bid-wanted-in-competition volumes “dialing down” to about $650 million by original face amount last week compared to more than $1 billion in the week earlier, according to BofA Merrill Lynch’s securitization weekly published June 26.

More than $530 million of the secondary market action came in the 2.0/3.0 universe and the majority was concentrated in the AAA/AA part of the capital structure, according to the BofA Merrill Lynch report.

Volatility in the broader markets and quarter-end put some pressure on the CLO secondary market, and there was some spread widening even though supply in the mezzanine part of the capital structure was limited.

Market players have their eyes on the first Volcker conformation deadline that is expected within a month. At that time banks may no longer hold positions in non-compliant CLOs without adhering to certain limits and putting up additional capital.

U.S. CLO 1.0 AAA tranches were marked most recently at a 150 bps discount margin for the year to date.

“The widening seen in this part of the capital structure leaked down the capital structure this week, with 1.0 AA to BB spreads widening by between 15 bps to 50 bps,” the BofA Merrill Lynch analysts wrote.

Uncertainty regarding whether positions in this part of the capital structure are considered ownership interests will likely need to be revolved on a deal-by-deal basis with more volatility expected in the weeks ahead. But BofA said it considers non-bank capital a good opportunity now.

Widening in U.S. 1.0 CLO deals leaked down the capital structure last week, creating an opportunity for non-bank capital, BofA Merrill Lynch said.

Volumes remain thin and spreads continue to widen for European CLOs as well. There is weak demand from real money investors contributing to poor spread performance, especially at the top to the capital structure.

Greece-related volatility and the upcoming Volcker compliance deadline appear to be significant factors affecting pricing and liquidity.

Legacy AAA spreads have widened in the last three to four weeks, with bonds that had been trading around 70 bps DM now trading around 100 bps DM to 110 bps DM, according to BofA Merrill Lynch.

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