Neuberger sells $413.19 million; KCAP to bring deal; CLOs to expand into new asset classes

By Cristal Cody

Tupelo, Miss., May 7 - Babson Capital Management LLC and Neuberger Berman Fixed Income LLC both priced new collateralized loan obligation offerings, setting the deal pace to reach $65 billion to $75 billion in 2013, according to market sources.

In addition to the increase in issuance, the year will "see an expansion of the CLO market into new asset classes and new markets," according to a note on Tuesday from Craig Stein and Paul Watterson, co-heads of the structured products and derivatives group in New York at Schulte Roth & Zabel LLP.

"This market is expanding to include other similar financial products - the European CLO, the emerging market CLO and an expansion into asset classes such as high-yield bonds and commercial mortgage related assets."

The CLO market also will face a few issues over the year, the law firm partners said.

"Although market insiders predict a robust market for CLO offerings, even CLOs that primarily invest in senior secured loans to U.S. borrowers face challenges," according to the note.

"One of the main challenges this year is sourcing collateral with a yield sufficient for the equity investors in a CLO to receive an attractive return after interest is paid on the senior notes. Unless the spread on senior CLO notes continues to tighten, the equity returns may not be high enough to attract investors."

In the new issuance, Babson Capital Management brought its previously announced $490.75 CLO offering, according to a market source.

Neuberger sold $413.19 million of floating-rate, fixed-rate and subordinated notes due April 15, 2025.

KCAP to bring CLO

New deals in the pipeline include an offering from KCAP Senior Funding I, LLC, which plans to price $140.25 million of notes, according to sources.

KCAP Financial president and chief executive officer Dayl Pearson said on a conference call on Tuesday to discuss the company's first quarter earnings results that the firm plans to bring its next CLO before the quarter ends.

"The broadly syndicated market has tightened quite a bit in terms of pricing in the last six months," Pearson said.

"And the domain, the supply of paper is tight, but we're finding good value right now. And we're sort of taking it a little bit slower in terms of the warehousing in getting this done because we wanted to make sure we added as much new issue as possible.

"But we're very close to having sort of the other pieces of the equity put in place, and we hope to be in launching into the debt side of it in the next week or two," Pearson added.

The company has undergone refinancing of its CLOs that are past their reinvestment period over the quarter.

"The whole refinancing is lumpy," Pearson said.

"Luckily, a lot of the new deals have been the so-called cashless rolls, which allows [...] CLOs that are in past their reinvestment period to not commit to a new deal even though it's somewhat of a new deal, so that helps a bit. But there is a fair amount of refinancing activity."

KCAP plans sale

KCAP Senior Funding I is expected to price $140.25 million of notes due May 30, 2024 in the new CLO, market sources said on Tuesday.

The deal includes $77.25 million of class A-1 senior secured floating-rate notes (Aaa//); $9 million of class B-1 senior secured floating-rate notes (Aa2//); $10 million of class C-1 secured deferrable floating-rate notes (A2//); $9 million of class D-1 secured deferrable floating-rate notes (Baa2//); and $35 million of subordinated notes.

Guggenheim Securities LLC is the underwriter.

KCAP Financial, Inc. will manage the cash-flow CLO.

The offering is expected to close on May 28.

New York City-based KCAP Financial's portfolio companies, Katonah Debt Advisors and Trimaran Advisors, manage CLO funds, which invest in broadly syndicated loans, high-yield bonds and other credit instruments.

Neuberger prices $413.19 mln

Neuberger Berman CLO XIV, Ltd./Neuberger Berman CLO XIV, LLC priced $413.19 million of notes due April 15, 2025 in the CLO deal, according to market sources.

The offering included $1 million of class X senior secured floating-rate notes (Aaa//) priced at Libor plus 90 basis points; $217 million of class A-1 senior secured floating-rate notes (Aaa//) at Libor plus 113 bps; $35 million of class A-2 senior secured floating-rate notes (Aaa//) at Libor plus 113 bps; $30 million of class B-1 senior secured floating-rate notes at Libor plus 165 bps; $21 million of 3.146% class B-2 senior secured fixed-rate notes; $31 million of class C secured deferrable floating-rate notes at Libor plus 270 bps; $20 million of class D secured deferrable floating-rate notes at Libor plus 370 bps; $17 million of class E secured deferrable floating-rate notes at Libor plus 460 bps; and $41.19 million of subordinated notes.

Wells Fargo Securities LLC was the underwriter.

The CLO will be managed by Neuberger Berman Fixed Income.

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