LCM, Oaktree set to tap CLO market; market focus stays on Volcker; mezzanine notes active

By Cristal Cody

Tupelo, Miss., Jan. 15 - At least one and possibly two new collateralized loan obligation deals are expected to price later in the week, according to market sources on Wednesday.

LCM Asset Management LLC plans to price by the end of the week, an informed source said.

Oaktree Capital Management, LP intends to bring a $516.88 million CLO deal, according to informed sources.

"We're expecting to see one price this week," one source said. "I don't think it [Volcker Rule] will delay the primary market. New deals should be unaffected by Volcker generally because they can structure to avoid it."

Federal agencies announced on Tuesday they approved an interim rule to permit banks to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities, but the agencies did not address CLOs. Under the Volcker Rule issued on Dec. 10, banks may not hold CLOs that hold debt securities.

"We're hoping they address the CLOs," one CLO manager said on Wednesday.

In testimony in a hearing before the U.S. House Committee on Financial Services on Wednesday, Elliot Ganz, general counsel of the Loan Syndications and Trading Association, said the Volcker Rule "arbitrarily and artificially converts highly rated CLO debt securities into the equivalent of equity securities thereby making them ineligible to be held by banks."

The LSTA requests confirmation that the term "ownership interest" in the final rule does not include debt securities of CLO issuers that are covered funds.

American banks hold nearly $70 billion of CLO securities, according to Ganz.

The Federal Reserve has set bank compliance by July 21, 2015.

In the CLO secondary market, trading activity has been strong over the week, a market source said.

"It's been busy," the source said. "The secondary market's very active, mostly mezzanine."

LCM to price CLO

LCM Asset Management is expected to place its CLO deal later in the week, a source said.

The transaction details have not been finalized.

The Chicago-based asset management firm was last in the market in June when it priced the $417.75 million LCM XIV LP CLO deal.

Oaktree deal on tap

Oaktree Capital Management plans to sell $516.88 million of notes due February 2025 in the Oaktree CLO 2014-1 Ltd./Oaktree CLO 2014 LLC deal via Citigroup Global Markets Inc., according to informed sources.

The offering includes $310 million of class A-1 floating-rate notes (Aaa/AAA/); $70 million of class A-2 floating-rate notes (/AA/); $35 million of class B floating-rate notes (/A/); $25 million of class C floating-rate notes (/BBB/); $22 million of class D floating-rate notes (/BB/) and $54.88 million of subordinated notes.

Oaktree Capital Management will manage the CLO, which is backed by broadly syndicated first-lien senior secured loans and eligible investments.

Oaktree Capital Management priced the $655.18 million Oaktree Enhanced Income Funding Series III Ltd. deal in June and the $759.48 million Oaktree Enhanced Income Funding Series II, Ltd. transaction in March.

Oaktree Capital Management is a Los Angeles-based asset management firm.

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