Ramp-up for CLO deals lagging; Ares to sell $443 million; market quiet ahead of holiday

By Cristal Cody

Tupelo, Miss., July 3 - Market sources report that ramping up portfolios for CLO deals is taking longer.

Ares Enhanced Loan Investment Strategy IR, Ltd.'s $443 million offering of notes collateralized primarily by broadly syndicated first-lien senior secured corporate loans is expected to be about 95% ramped when the deal closes.

The $511.3 million OHA Loan Funding 2013-1, Ltd. CLO from Oak Hill Advisors, LP is expected to be 90% ramped when it closes on July 15.

Halcyon Loan Advisors LP's $465.5 million Halcyon Loan Advisors Funding 2013-2 Ltd./ Halcyon Loan Advisors Funding 2013-2 LLC managed cash-flow deal should be about 60% ramped when the deal closes, according to a market source.

CLO ramp-up has proved challenging this year but improved recently when sourcing collateral became slightly easier for CLOs, Moody's Investors Service said in a monthly report on the CLO market.

"The risk to rated noteholders has been and will remain only negligible because of safeguards that protect noteholders (at the expense of the equity holders) should CLOs fail to ramp up by their effective dates," Moody's said. "Although the risk of a ramp-up failure has increased from prior years, it is limited because of precautionary steps managers have taken to ramp up CLOs."

Most CLOs require a three-to-six-month period to purchase collateral.

Delayed-draw notes have provided some managers with time to acquire collateral, the agency said in the report.

"A few managers, particularly those with concerns about access to the primary leveraged loan market, have resorted to delayed-draw notes, which allows them to issue additional debt only after they have identified suitable CLO collateral," Moody's said.

Market activity slowed on Wednesday ahead of the Independence Day holiday and upcoming June job report on Friday from the Department of Labor, sources said.

Ares plans $443 million deal

Ares Enhanced Loan Investment Strategy's expected offering of notes due July 15, 2025 includes $236 million of class A-1A senior floating-rate notes (Aaa), $87 million of class A-1B senior floating-rate notes (Aaa); $40 million of class A-2A senior floating-rate notes; $20 million of class A-2B senior fixed-rate notes; $34 million of class B mezzanine deferrable floating-rate notes; $26 million of class C mezzanine deferrable floating-rate notes; $20 million of class D mezzanine deferrable floating-rate notes and $78.8 million of subordinated notes.

Citigroup Global Markets Inc. is the placement agent.

Ares Enhanced Loan Management IR, LP is the CLO manager.

The notes will be issued on the closing date in connection with the refinancing of the CLO manager's secured notes due Oct. 16, 2020 that priced in September 2008.

Proceeds will be used to redeem in full the classes of secured notes that are being refinanced.

Ares Enhanced Loan Management IR is an affiliate of asset investment management firm Ares Capital Management LLC.

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