Tighter CLO spreads eyed; Symphony CLO XII prices $832.5 million; CLO loan holdings flat

By Cristal Cody

Tupelo, Miss., Sept. 27 - Collateralized loan obligation spreads are predicted to tighten before the year is over, according to a market source.

CLO spreads were quoted on Friday in the 140 basis points area for AAA-rated notes. In the rest of the capital structure, AA-rated notes were seen in the 200 bps area; A-rated tranches at the 340 bps area; BBB-rated tranches in the 440 bps area and BB-rated notes in the 650 bps area, according to Wells Fargo Securities, LLC.

"We do believe that mezzanine spreads will tighten and see the possibility of 75 bps-100 bps of potential tightening in primary BBB and BB tranche spreads," Dave Preston, a Wells Fargo analyst, said in a note.

The tightest levels for BBB-rated and BB-rated spreads were about 350 bps and 550 bps, respectively, in late May, he said.

In new issuance, Symphony Asset Management LLC brought its second deal of the year with an $832.5 million CLO that priced the AAA-rated slice at Libor plus 130 bps and the tranche at the bottom of the capital stack at 515 bps, according to a market source.

Symphony taps market

Symphony Asset Management raised $832.5 million in the offering of notes due Oct. 15, 2025, a market source said.

Symphony CLO XII, Ltd./Symphony CLO XII LLC sold $500 million of class A senior floating-rate notes (//AAA) at Libor plus 130 bps; $61 million of class B-1 senior floating-rate notes at Libor plus 175 bps; $45 million of 4.08% class B-2 senior fixed-rate notes; $47 million of class C deferrable floating-rate notes at Libor plus 275 bps; $51 million of class D deferrable floating-rate notes at Libor plus 350 bps; $34 million of class E deferrable floating-rate notes at Libor plus 490 bps; $21 million of class F deferrable floating-rate notes at Libor plus 515 bps and $73.5 million of subordinated notes.

BofA Merrill Lynch arranged the deal, which is expected to close on Oct. 24.

Proceeds will be used to purchase a portfolio of about $800 million of primarily senior secured leveraged loans.

Symphony Asset Management, a San Francisco-based asset management firm that manages about 10 CLOs, brought the $827.5 million Symphony CLO XI Ltd. transaction in February.

CLO holdings

The CLO market continues to keep pace as the loan market has grown 18% over the past year, with CLOs maintaining a 46% to 52% share of the market, Bradley Rogoff, an analyst with Barclays, said in a note on Friday.

About $57 billion of CLOs have priced year to date and have surpassed 2012 issuance, sources said.

"We estimate that CLOs currently hold $280-320 billion in U.S. loans, making their share of the asset class unchanged [year over year] at 46-52%," Rogoff said. "Although CLO creation has been robust this year, it has slowed somewhat since an FDIC rule change on April 1 that made it more expensive for banks to hold AAA tranches."

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