ICG prices €361.4 million; Europe pipeline buzzes; CLO mezzanine notes widen in secondary

By Cristal Cody

Tupelo, Miss., Aug. 1 – Intermediate Capital Group plc tapped the European primary market with a €361.4 million offering of collateralized loan obligation notes due 2027, according to a market source on Friday.

The St. Paul’s CLO V Ltd. vehicle placed the AAA-rated tranche of notes at Euribor plus 134 basis points.

J.P. Morgan Securities plc was the placement agent.

The deal is the London-based investment firm’s second European CLO transaction in 2014.

The European CLO primary market had not seen new issuance since June, sources note.

New euro-denominated CLO deals are expected since “several are currently being marketed,” Morgan Stanley & Co. LLC analysts Vishwanath Tirupattur and Mia Qian said in a note on Friday.

Market participants forecast about €10 billion to €15 billion of European CLO issuance for the year.

About €9.4 billion in 18 deals have priced through June, according to data compiled by Prospect News.

More than $72 billion of U.S. dollar-denominated CLOs have priced year to date with as much as $120 billion of total issuance projected for the year.

The pool of investable instruments in Europe is much smaller compared to the U.S. market, according to the Morgan Stanley note.

“Collateral sourcing remains a substantial challenge for European CLOs,” the Morgan Stanley analysts said.

The main issues include that “some European CLO transactions currently in the works are intended to be Volcker compliant, and therefore would invest only in loans instead of a mixture of loans and bonds,” the analysts said. “Second, even for deals that can invest in both loans and bonds, the sourcing challenge remains substantial because the market has softened with smaller monthly loan and bond issuance in Europe.”

Looking ahead, about 15 broadly syndicated and middle-market deals totaling $7.5 billion are in the pipeline, a source said on Friday.

CIFC Asset Management LLC intends to bring a $626.5 million deal, according to a market source.

The CIFC Funding 2014-IV, Ltd./CIFC Funding 2014-IV, LLC transaction will price via Morgan Stanley & Co. LLC.

Secondary active

U.S. CLO secondary activity saw activity over the week, Wells Fargo Securities, LLC senior analyst Dave Preston and associate analyst Jason McNeilis said in a note.

“The CLO secondary market enters August just as it entered July – with healthy flows – but is somewhat overshadowed by the continual primary volume,” the Wells Fargo analysts said. “Shorter bonds continue to trade well, and this week saw a slight pickup in equity trading. The equity was well bid, as investors apparently see many potential causes of volatility, both in global events and in financial markets.”

Mezzanine spreads have drifted wider over the past month, the analysts said.

CLO BBB-rated notes have widened 15 bps to Libor plus 435 bps, while BB notes are 20 bps wider on the month at Libor plus 645 bps, according to the note.

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