NIBC sells €306 million North Westerly CLO; U.S. primary slows as market eyes Volcker Rule

By Cristal Cody

Tupelo, Miss., Dec. 12 - NIBC Bank NV sold the €306 million North Westerly CLO IV 2013 BV transaction on Thursday, a deal in the pipeline for a few months and the bank's first in the series since 2006, according to an informed market source.

NIBC Bank priced €161 million of notes in the AAA tranche at Euribor plus 145 basis points.

The deal is the second European CLO brought in December.

GSO Capital Partners LP priced €615.69 million of notes due Jan. 8, 2027 in the Richmond Park CLO Ltd. transaction on Dec. 4. The Richmond Park CLO sold €351.05 million of class A-1 senior secured floating-rate notes (Aaa//AAA) at Euribor plus 140 bps.

U.S. CLO primary activity slowed as the Volcker Rule issued on Tuesday took center place among discussions, sources said. Still, a few CLO deals are expected to price before the year closes, according to market sources.

"It's all about one thing - the Volcker Rule," one source said on Thursday. "We're all trying to make sense of it and see what's allowed and not allowed. It's not all clear at this point, but in general, it's not positive for the market."

The rules, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, prohibit banks from short-term proprietary trading and impose limits on banks' investments in hedge funds or private equity funds.

The rules are effective April 1, 2014, but the Federal Reserve has delayed compliance by banking organizations until July 21, 2015.

"From a regulatory standpoint, CLOs resemble private equity funds or hedge funds," according to a Wells Fargo Securities, LLC report on Thursday from Dave Preston, senior analyst, and Jason McNeilis, associate analyst.

"The regulations contain several clauses that exempt loan securitizations, but it appears that a CLO would not be exempt if the CLO owns bonds (or other securities)," the analysts said. "If a CLO owns a bond, it is a "covered fund" and Volcker applies. If a CLO does not own bonds, Volcker does not apply."

For nonexempt CLOs, banks could not own the equity tranches since this would be ownership of a covered fund, according to the report.

"U.S. banks own a substantial portion of the AAA CLO market," the Wells Fargo analysts said. "If regulators push banks to sell their AAA notes, CLOs spreads could widen significantly, and banks could take losses when selling."

The Volcker Rule also could have implications for underwriting and trading CLOs, according to the report.

"The rule may limit underwriters or structurers from providing warehouses to nonexempt CLOs and may limit banks trading in non-exempt CLO tranches underwritten by that bank," the analysts said.

NIBC Bank prices €306 million

Looking at the European primary market, NIBC Bank sold €306 million of notes due January 2026 in the North Westerly CLO IV deal done under Regulation S and Rule 144A, according to a source.

The offering was upsized from an initial estimate of €304.5 million.

North Westerly CLO IV priced €161 million of class A-1 floating-rate notes (/AAA/AAA) at Euribor plus 145 bps; $16 million of 2.8% class A-2 fixed-rate notes (/AAA/AAA); €27 million of class B-1 floating-rate notes (/AA/AA) at Euribor plus 210 bps; €10 million of 3.65% class B-2 fixed-rate notes (/AA/AA); €17.5 million of class C floating-rate notes (/A/A) at Euribor plus 325 bps; €16 million of class D floating-rate notes (/BBB/BBB) at Euribor plus 425 bps; €21 million of class E floating-rate notes (/BB/BB) at Euribor plus 600 bps and €37.5 million of subordinated notes.

RBS Securities Inc. was the bookrunner. NIBC was the co-arranger.

NIBC Bank will manage the CLO, which is backed primarily by broadly syndicated senior secured floating-rate notes.

Proceeds from the offering will be used to purchase a €300 million portfolio of European and U.S. leveraged loans and bonds.

NIBC Bank, based in the Hague, the Netherlands, last priced a European CLO transaction in 2006 when it brought the €410 million North Westerly CLO III BV deal.

Tennenbaum taps market

Tennenbaum Capital Partners LLC brought an offering of $153 million of floating-rate loans due Dec. 31, 2022 in a CLO backed primarily by first-lien senior secured loans to middle-market corporate borrowers, according to an informed source.

Tennenbaum Senior Loan SPV LLC sold $20 million of class A-R floating-rate loans (/AAA/) priced at Libor plus 250 bps; $55.5 million of class A-1T floating-rate loans (/AAA/) at Libor plus 200 bps; $13.5 million of class A-2T floating-rate loans (/AAA/) at Libor plus 200 bps; $9 million of class B floating-rate loans (/AA/) at Libor plus 450 bps and $55 million in the equity tranche.

Natixis Securities Americas LLC arranged the deal, which settled on Wednesday.

Tennenbaum Capital Partners will manage the CLO.

Tennenbaum Capital Partners is a Los Angeles-based alternative investment management firm.

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