U.S. CLOs bypass Europe due to Rule 122a, market to U.S. and Asia investors; THL prices

By Cristal Cody

Tupelo, Miss., April 15 - Most U.S. collateralized loan obligations are sidestepping European investors because of Rule 122a, according to market sources.

"There have been a few deals that were 122a compliant, but otherwise, people are bypassing Europe and just looking to market in the U.S. and Asia," an informed source said. "U.S. deals would have to have risk retention compliance. U.S. [CLOs] are being driven by investors in the U.S. and Asia, so they just avoid marketing in Europe for the most part."

The rule that requires the CLO manager or a third party to hold 5% equity in the vehicle restricts most issuers, according to market sources.

Two recent deals from American Capital, Ltd. and Apollo Global Management, LLC bucked the trend of avoiding Europe.

Apollo Global Management said on Friday that it sold €325 million in its first European CLO through ALME Loan Funding 2013-1 Ltd., a managed cash-flow CLO.

American Capital, Ltd. on March 25 closed on a $414.3 million CLO under the ACAS CLO 2013-1, Ltd./ACAS CLO 2013-1, LLC vehicles.

American Capital reported on April 1 that CLO manager American Capital Leveraged Finance Management, LLC purchased $25.3 million of the $36.3 million non-rated equity tranche of subordinated notes, with third-party investors purchasing the remaining $11 million.

The retention of the equity investment is intended to make the CLO compliant with risk retention rules in Europe, the private equity firm said in the statement.

THL prices $467.1 million CLO

THL Credit, Inc. plans to close on a $467.1 million CLO on Wednesday, according to a market source.

THL Credit Wind River 2013-1 CLO Ltd./THL Credit Wind River 2013-1 CLO LLC sold the CLO in seven tranches of notes due April 20, 2025.

In the deal, THL priced $277 million of class A-1 senior secured floating-rate notes (/AAA/) at Libor plus 115 basis points; $29.3 million of class A-2A senior secured floating-rate notes (/AA/) at Libor plus 190 bps; $22 million of 3.45% class A-2B senior secured fixed-rate notes (/AA/); $38.9 million of class B senior secured deferrable floating-rate notes (/A/) at Libor plus 280 bps; $25.2 million of class C senior secured deferrable floating-rate notes (/BBB/) at Libor plus 340 bps; $23.8 million of class D senior secured deferrable floating-rate notes (/BB/) at Libor plus 460 bps; and $50.9 million of non-rated subordinated notes.

Citigroup Global Markets Inc. arranged the transaction.

The notes have a non-call period that ends on April 15, 2015.

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.

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