CLO issuance hits $57 billion year to date; pipeline 'quite full'; Northwoods CLO prices

By Cristal Cody

Tupelo, Miss., Sept. 26 - Issuance in the collateralized loan obligation market remains strong with $4.6 billion of deals priced in September and $57 billion priced year to date, according to a market source on Thursday.

"The pipeline is quite full," Dave Preston, an analyst with Wells Fargo Securities, LLC, said in a report on Thursday. "Given the current state of the market, it may [be] difficult to place all these CLOs. However, we believe that some managers will be quite driven to print new deals, and may concede some economics in order to price."

Market sources estimate about $14 billion of CLO deals in the pipeline.

The year is expected to see about $70 billion to $80 billion of transactions, though the lower range is "more probable," Preston said.

"Headwinds to CLO issuance include a relative lack of investors (especially at the AAA level), a busy pipeline, increased AAA spreads and new regulations," he said. "Also, the increase in long rates has made competing assets, notably CMBS, more compelling on a yield basis."

The CLO market is expected to stay strong for at least the next couple of years, and despite fears, a 5% risk retention requirement likely to go into effect in 2015 or 2016 for U.S. deals may not be enough to kill the market, one syndicate source said on Thursday.

"There's been a number of regulatory changes that you would've thought would hurt the market or almost kill it off," the source said. "Those changes have happened and the market is still going. There's obviously more value in highly leveraged companies than perhaps people think. These companies need to be financed, and the market seems to be adjusting."

In new issuance, CLO manager Angelo, Gordon & Co., LP priced the $367 million Northwoods Capital X, Ltd./Northwoods Capital X, LLC deal, a source said.

The CLO printed with spreads that ranged from Libor plus 100 basis points on a class X tranche of AAA-rated notes to Libor plus 460 bps on the BB-rated slice.

Northwoods sells $367 million

Northwoods Capital X priced nine tranches of notes in the $367 million CLO, according to a market source.

The CLO brought $2.5 million of class X senior secured floating-rate notes (Aaa/AAA/) at Libor plus 100 bps; $165 million of class A-1 senior secured floating-rate notes (Aaa/AAA/) at Libor plus 140 bps; $45 million of 3.527% class A-2 senior secured fixed-rate notes (Aaa/AAA/); $22 million of class B-1 senior secured floating-rate notes (/AA/) at Libor plus 190 bps and $20 million of 4.361% class B-2 senior secured fixed-rate notes (/AA/) at the top of the capital structure.

The CLO also sold $31.5 million of class C mezzanine secured deferrable floating-rate notes (/A/) at Libor plus 270 bps; $19.5 million of class D mezzanine secured deferrable floating-rate notes (/BBB/) at Libor plus 360 bps; $19 million of class E junior secured deferrable floating-rate notes (/BB-/) at Libor plus 460 bps and $42.5 million of subordinated notes.

The notes are due Nov. 4, 2025, except the class X notes, which are due Nov. 4, 2016.

Morgan Stanley & Co. LLC was the placement agent.

Angelo, Gordon, a New York City-based alternative investment manager, was last in the market with a CLO deal in November when it sold $625 million in the Northwoods Capital IX, Ltd. transaction.

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