THL to price a second deal; KKR CLOs are 'bread and butter,' plans U.S., Europe deals

By Cristal Cody

Tupelo, Miss., Oct. 23 - THL Credit, Inc. plans to bring its second CLO deal of the year with a $447.11 million offering of notes due Jan. 19, 2026, according to a market source.

The deal from THL Credit Wind River 2013-2 CLO Ltd./THL Credit Wind River 2013-2 CLO LLC includes $93.74 million of class A-1 senior secured floating-rate notes (Aaa); $147.5 million of class A-2a senior secured floating-rate notes (Aaa); $7.77 million of class A-2b senior secured floating-rate notes (Aaa); $20 million of class A-3 senior secured fixed-rate notes (Aaa); $27.01 million of class B-1 senior secured floating-rate notes; $32.41 million of class B-2 senior secured fixed-rate notes; $30.25 million of class C secured deferrable floating-rate notes; $21.34 million of class D secured deferrable floating-rate notes; $18.64 million of class E secured deferrable floating-rate notes; $6.38 million of class F secured deferrable floating-rate notes and $41.97 million of subordinated notes.

Deutsche Bank Securities, Inc. is the underwriter.

The CLO will be managed by THL Credit Senior Loan Strategies LLC and is backed by a revolving pool of broadly syndicated senior secured loans.

The deal is expected to close on Nov. 14.

Boston-based THL Credit brought the $467.1 million THL Credit Wind River 2013-1 CLO Ltd./THL Credit Wind River 2013-1 CLO LLC deal in April.

KKR eyes more market share

KKR Financial Holdings LLC executives said on Wednesday during the company's third-quarter earnings conference call that it expects to be in the CLO market more going forward.

"CLOs have historically been KFN's bread and butter," Craig Farr, chief executive officer of KKR Financial Holdings, said on the call. "We're committing to being a more active participant in the CLO market, both in the U.S. and Europe."

On Friday, parent company KKR & Co. LP said it would acquire Avoca Capital, a Dublin-based European credit investment manager.

Avoca has a €300 million European CLO deal in the pipeline via Credit Suisse Securities (Europe) Ltd., according to an informed source.

In Europe, effective Jan. 1, 2014, CLO originators or sponsors will be required to retain a 5% interest in deals.

A 5% risk retention for CLO managers also is under proposal in the U.S. market, though the regulation is not expected to take effect until 2015 or 2016.

"We think global risk retention rules may give us a chance to take more share in the States if smaller participants find the new regulation too capital intensive," Farr said.

KKR Financial Holdings has priced two CLOs in the last year, including the $519.4 million KKR Financial CLO 2013-1, Ltd./KKR Financial CLO 2013-1, LLC deal in June and the $412 million KKR Financial CLO 2012-1, Ltd. transaction in December.

In September, KKR said that it added $300 million to the total facility size of its KKR Financial CLO 2011-1, Ltd. deal brought in 2011.

The CLO 2011-1 now can borrow up to an additional $225 million at the same rate of Libor plus 135 bps. KKR Financial also purchased an additional $75 million of subordinated notes from the CLO.

"Our CLOs have performed quite well," Michael McFerran, chief financial officer of KKR Financial Holdings, said on the conference call. "Collectively, they're still generating a 15% annualized cash yield for the third quarter but ... most of our CLOs are winding down."

McFerran said that about $1.2 billion of its $1.5 billion of CLOs are pre-financial crisis deals that will amortize by May 2014.

KKR is focusing its "capital to new CLOs to offset the run-off," McFerran said. "We've done two new deals [in the] last year and upsized an old one. We hope to pick up our issuance pace from here."

KKR reported income for the quarter ended Sept. 30 of $33 million, or 16 cents per share, compared with $112 million, or 61 cents per share, in the same period a year ago.

Third-quarter revenue declined 10% to $128.7 million from the year-ago period.

KKR Financial Holdings is based in San Francisco.

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