LCM Asset Management preps $624 million LCM XV CLO; spreads flat across capital structure

By Cristal Cody

Tupelo, Miss., Jan. 27 - LCM Asset Management LLC is set to offer $624 million of notes in a new collateralized loan obligation deal, while primary activity is expected to stay light over the week, according to informed sources on Monday.

"The U.S. CLO primary market is still largely dormant, as issuers and investors attempt to sort out the uncertainty created by the Volcker Rule," according to a Wells Fargo Securities, LLC report on Monday from Dave Preston, senior analyst, and Jason McNeilis, associate analyst. "It is likely that issuance will begin to pick up as CLO managers begin to issue with no bond buckets."

The Volcker Rule that regulators released on Dec. 10 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits banks from owning CLOs that hold debt securities.

U.S. CLO issuance year to date stands at about $933 million, according to a market source.

Secondary market action remained quiet with CLO spreads unchanged on the week, market sources said.

Mezzanine tranches had tightened the first half of the month but are closing out January unchanged, the Wells Fargo analysts said.

"The volatility in the equity market last week may provide a temporary brake on mezzanine note tightening," Preston and McNeilis said. "In general, we expect a general credit curve flattening due to the regulatory uncertainty around the top of the capital stack and a strong bid for yield."

In the secondary market, AAA notes are flat from a week ago at Libor plus 155 bps, according to the report.

AA notes are quoted unchanged at Libor plus 225 bps, and A-rated tranches are flat at Libor plus 300 bps.

BBB tranches are trading flat at Libor plus 400 bps, while BB-rated notes are flat at Libor plus 585 bps, according to the Wells Fargo analysts.

LCM to offer $624 million CLO

CLO manager LCM Asset Management plans to price the $624 million LCM XV LP/LCM XV LLC transaction via Morgan Stanley & Co. LLC, according to a market source.

The deal includes $4 million of class X senior floating-rate notes due 2017 (Aaa/AAA/); $378 million of class A senior floating-rate notes due 2024 (Aaa/AAA/); $63 million of class B senior floating-rate notes due 2024 (/AA/); $55.5 million of class C deferrable floating-rate notes due 2024 (/A/); $30 million of class D deferrable floating-rate notes due 2024 (/BBB/); $30 million of class E deferrable floating-rate notes due 2024 (/BB-/) and $63.51 million of subordinated notes due 2024.

New York City-based LCM Asset Management was in the market in 2013 with the $519 million LCM XIII LP offering and the $417.75 million LCM XIV LP deal.

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