Neuberger Berman CLO prices Aaa tranche at Libor plus 140 bps; market eyes risk retention

By Cristal Cody

Tupelo, Miss., Sept. 16 - Deal levels are expected to pick up in the latter half of September, following Neuberger Berman Fixed Income LLC's $412.21 million collateralized loan obligation offering, according to market sources.

The CLO manager priced its $412.21 million CLO at spread ranges of Libor plus 140 basis points for the class A-1 tranche to Libor plus 530 bps for the class F notes.

Over the lull in primary activity in the first half of the month, most market sources said they were absorbing the latest revised risk retention rule.

The proposed risk retention requirement released on Aug. 28 for the Dodd-Frank Wall Street Reform and Consumer Protection Act would be based on fair value and requires CLO managers to retain 5% of the CLO balance.

"That's where a lot of the focus has been the last two weeks," one market source said. "If things go as they're currently drafted, there's definitely going to be contraction, but it's hard to tell how much it's going to contract. The final rules may address some of the more onerous concerns."

The comment period on the proposed rule expires Oct. 30, with the risk retention requirement effective two years after the final rule is published.

"It's a big deal," another market source said. "We think there will be a market - just a smaller market with only the big managers issuing deals."

New CLO structures could come with shorter non-call periods to allow managers to refinance deals before the rule takes effect, according to Bradley Rogoff, an analyst with Barclays.

"While risk retention is clearly a longer-term negative for new CLO creation, it could prove to be a near-term positive as deals get pulled forward," Rogoff said. "One gauge of this behavior will be the non-call period on new deals, which has hovered around two years since 2010 but could decline to allow new vehicles to be refinanced before the rule takes effect."

Neuberger Berman brings deal

Neuberger Berman raised $412.21 million in the offering of notes due Oct. 15, 2025 via Wells Fargo Securities LLC, according to informed sources on Monday.

Neuberger Berman CLO XV, Ltd./Neuberger Berman CLO XV, LLC priced $1.25 million of class X senior secured floating-rate notes (Aaa) at Libor plus 90 bps; $105 million of class A-1 senior secured floating-rate notes (Aaa) at Libor plus 140 bps and $150 million of class A-2 senior secured floating-rate notes (Aaa) at Libor plus 110 bps for the first 18 months, then Libor plus 160 bps for the next 12 months and Libor plus 190 bps thereafter.

The CLO also sold $20 million of class B-1 senior secured floating-rate notes at Libor plus 172 bps; $25 million of 4.416% class B-2 senior secured fixed-rate notes; $29 million of class C-1 secured deferrable floating-rate notes at Libor plus 285 bps; $20.75 million of class D secured deferrable floating-rate notes at Libor plus 325 bps; $17.75 million of class E secured deferrable floating-rate notes at Libor plus 460 bps; $7.5 million of class F secured deferrable floating-rate notes at Libor plus 530 bps and $35.96 million of subordinated notes.

Neuberger Berman sold the $413.19 million Neuberger Berman CLO XIV, Ltd./Neuberger Berman CLO XIV, LLC transaction in May.

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