HayFin sells AAA notes at Euribor/Libor plus 155 bps; slow August eyed; CLO spreads cheap

By Cristal Cody

Tupelo, Miss., Aug. 9 - Haymarket Financial LLP raised €397.75 million in a collateralized loan obligation offering of notes placed in euro and sterling denominations, according to market sources.

At the top of the capital structure, HayFin Ruby II Luxembourg SCA sold €81.9 million of class A-1 floating-rate notes (/AAA/) at Euribor plus 155 basis points along with £81.9 million of class A-2 floating-rate notes (/AAA/) at Libor plus 155 bps.

3i Debt Management Investments Ltd. also brought the €309.6 million Harvest CLO VII Ltd. over the week, bringing total European CLO issuance year to date to about €4 billion, a source said.

In the European CLO market, more than €1 billion of deals are expected in the near-term pipeline, according to a market source. About €5 billion to €7 billion of total CLO issuance is forecast in Europe for the year.

U.S. CLO primary issuance in July lagged, but the pace of issuance is expected to pick up after August with total 2013 issuance projected at more than $70 billion, according to market sources.

Year to date, more than $49 billion of notes in 29 CLO transactions have priced, a source said. About $13 billion in 29 deals are in the pipeline.

"With projections for a slow August, a seasonal pickup in primary issuance post-Labor Day is needed to hit the forecast," Dave Preston, senior analyst at Wells Fargo Securities, LLC, said in a note.

Loan issuance remains high on robust demand from retail fund flows and CLO creation, Barclays analysts said in a note on Friday.

"We have yet to see even a single day of outflows from retail funds in 2013," the analysts said. "CLO creation is also running ahead of last year's post-crisis highs. We expect volatility to remain low and spreads to be range-bound for the rest of August."

CLO tranches remain cheaper with spreads likely to hold over August, sources said.

"We believe CLOs, especially AAA tranches, continue to be quite cheap from a risk-reward standpoint compared to other assets," Preston said. "We note the spread tightening in corporate credit and a rally in CMBS. As other assets tighten, we expect CLO spreads to follow suit on a lagged basis."

Spread tightening in other assets could increase demand for CLOs, he said.

Haymarket prices

The HayFin Ruby II CLO placed a total of 13 tranches of senior secured notes due August 2024, sources said.

In addition to the AAA-rated tranches, Hayfin sold €26 million of class B-1 floating-rate notes (/AA/) at Euribor plus 225 bps and £26 million of class B-2 floating-rate notes (/AA/) at Libor plus 225 bps; €11.5 million of class C-1 floating-rate notes (/A/) at Euribor plus 350 bps; £11.5 million of class C-2 floating-rate notes (/A/) at Libor plus 350 bps; €10.24 million of class D-1 floating-rate notes (/BBB/) at Euribor plus 425 bps; €10.24 million of class D-2 floating-rate notes (/BBB/) at Libor plus 450 bps; €13 million of class E-1 floating-rate notes (/BB/) at Euribor plus 700 bps and £12.87 million of class E-2 floating-rate notes (/BB/) at Libor plus 700 bps.

The CLO also included €50 million of senior secured variable funding notes (/AAA/) priced at Euribor plus 170 bps that were not offered to investors, €31 million of non-rated class F-1 subordinated notes and £31.6 million of non-rated class F-2 subordinated notes.

Natixis was the placement agent.

Haymarket Financial will manage the CLO, which is securitized by a revolving pool of euro- and sterling-denominated senior secured loans and bonds and second-lien loans and bonds.

The CLO offering was a refinancing of the HayFin Ruby Luxembourg CLO that priced in 2011.

Haymarket, a London-based finance firm, plans to use the proceeds from the HayFin Ruby II CLO to redeem notes from the 2011 transaction.

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