CLO volume light; Cairn refinances; U.S., European secondary trading thin, spreads stable

By Cristal Cody

Tupelo, Miss., Oct. 19 – October CLO primary action remains light, but more activity is ahead before the year is out, according to market sources on Monday.

“Primary CLO market continues at a subdued pace, with only $2.6 [billion] MTD on 5 deals,” J.P. Morgan Securities LLC analysts said in a note. “October is on pace as the slowest month in the new issue US CLO market in 2015. A challenging arb and the inability for CLO spreads to stabilize is a major factor impacting CLO formation.”

Year-to-date U.S. issuance has climbed to more than $90 billion, including middle-market, broadly syndicated and refinancing transactions, according to Prospect News data.

BofA Merrill Lynch analysts said in a note on Monday that U.S. broadly syndicated CLO supply could pick up to hit $100 billion on the stabilization of oil prices and an elevated forward institutional loan calendar, “which historically is highly correlated with the pace of weekly CLO issuance.”

In new issuance, details emerged on Cairn Capital Ltd.’s €306.05 million private placement restructuring of a vintage CLO deal.

Secondary market activity was light over the previous week in the U.S. and European CLO markets, according to BofA Merrill Lynch.

The European CLO secondary market saw low trading volumes with about €140 million of bonds on BWIC lists, though many bonds did not trade, according to the note.

The U.S. CLO secondary market had a little more action with about $610 million of BWIC volume over the previous week, the analysts said.

“Activity was concentrated in CLO 2.0/3.0 AAA and BBB tranches, though many individual bonds ultimately did not trade as the market continued to operate in wait-and-see mode,” the analysts said. “Spreads generally remained at levels seen over the prior few weeks.

“CLO 2.0/3.0 AAA spreads widened a modest 2 [bps] to the 162 [bps] context in the week while mezzanine continued to hold at YTD wide levels of 800 bps and 1,000 bps for BB and B bonds, respectively.”

Cairn prices €306.05 million

Cairn Capital sold €306.05 million of notes due Oct. 20, 2028 in a restructuring of its vintage 2013 Cairn CLO III BV transaction, according to a market source.

The CLO priced €181.5 million of class A senior secured floating-rate notes at Euribor plus 140 basis points and €28 million of class B senior secured floating-rate notes at Euribor plus 220 bps at the top of the capital structure.

Credit Suisse Securities (Europe) Ltd. was the refinancing agent.

Cairn Loan Investments LLP will manage the CLO.

The CLO is backed primarily by a targeted €300 million portfolio of senior secured obligations.

Cairn CLO III notified noteholders in September that it planned to issue new notes in the transaction originally priced on Feb. 20, 2013.

The CLO originally sold €181.5 million of class A floating-rate notes at Euribor plus 140 bps and €28 million of class B floating-rate notes at Euribor plus 235 bps at the top of the stack.

The London-based credit asset management firm has been in the European primary market over the year with one new CLO transaction and one refinancing deal.

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