New Sound Point CLO pricing emerges; Q2 issuance lags year ago pace; volume up for year

By Rebecca Melvin

New York, June 29 – Pricing emerged on another CLO deal on Monday even as slowing primary activity is anticipated during the holiday-shortened week in which the second quarter ends.

Markets are closed on Friday in observance of U.S. Independence Day.

Sound Point Capital Management LP priced a $515.5 million CLO transaction in nine tranches maturing in 2027, according to market sources.

Sound Point Capital sold the Sound Point CLO IX, Ltd./Sound Point CLO IX Inc. with $325 million of class A senior secured floating-rate notes (Aaa) at Libor plus 152 basis points, which was a basis point tighter compared to its previous CLO transaction that priced in March.

BofA Merrill Lynch arranged the deal.

For the second quarter overall, the pace of new issuance slowed. Issuance was $40.1 billion in 74 deals for the second quarter of 2015, compared to $45.5 billion in 78 deals for the second quarter of 2014, according to Prospect News data.

For the year to date, issuance still outpaces 2014’s pace, with $76.6 billion so far this year, compared to $71.2 billion for the first half of last year, according to the data.

For the upcoming third quarter, an uptick of issuance is expected as the market resets and a backlog of deals that were originally slated to price in the second quarter cycle through, according to Wells Fargo Securities’ Q3 2015 CLO Market Outlook report.

With a higher level of issuance, spreads in the upcoming third quarter were forecast to be neutral to wider, Wells Fargo analysts David Preston and Mackenzie Miller wrote in the report dated June 26.

While credit fundamentals have largely stabilized in the past nine months, the analysts said they expect a changing rate outlook that will bring more volatility to all fixed-income markets, including the loan market.

As for CLOs, AAA spreads have held in better than mezzanine spreads during June, and the Wells Fargo analysts expect that spreads will remain in the mid-140 bps range during the third quarter.

For the year, CLO spreads are significantly tighter, with much of the tightening occurring in April and May. But spreads moved wider since late May. On Monday, rates on corporate and sovereign debt rose after negotiations on the Greek debt bailout package broke down.

Greece’s main stock exchange was expected to remain closed all week along with the country’s banks.

Greece prime minister Alexis Tsipras announced over the weekend that the country’s banks would be closed temporarily ahead of a referendum on July 5.

Greece pulled out of negotiations at the last minute and called a referendum July 5 in which the citizens will vote on bailout terms set by the European Commission, International Monetary Fund and European Central Bank.

A “yes” vote would back pension cuts and further austerity measures along with strict economic reforms, while a “no” vote could cause Greece to exit from the euro zone and return to the drachma currency.

A deadline for a debt payment to the IMF will likely go unpaid. Growing fears of a Greek default and a potential exit from the euro zone were reflected in the sovereign debts markets with yields on Greek government debt spiking.

© 2015 Prospect News.
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