More than 719 CLOs in market; TICC shifts focus; KKR has most exposure to Texas Competitive

By Cristal Cody

Tupelo, Miss., Oct. 1 - The U.S. collateralized loan obligation market now is estimated to include more than 719 CLOs that total more than $269 billion through September, according to a presentation on Tuesday by TICC Capital Corp. at the JMP Securities Financial Services and Real Estate Conference in New York.

Jonathan H. Cohen, chief executive officer of TICC Capital, said in the presentation that the company has shifted its CLO investment focus over the past 18 months from CLO 1.0 deals to CLO 2.0 transactions, which have longer reinvestment periods.

TICC Capital's portfolio features $241 million in CLO investments with $196 million in CLO equity investments and $45 million in CLO debt investments and a total of $363 million in CLO investments across the platform, including affiliate Oxford Lane Capital Corp.

The Greenwich, Conn.-based business development company has "deep CLO experience," according to the presentation.

TICC's portfolio management team manages three CLOs: the $309 million T2 Income Fund CLO 1 Ltd. deal that priced in 2007 and matures in 2019; the $225 million TICC CLO LLC offering sold in 2011 and due 2021 and the $320 million TICC CLO 2012-1, LLC transaction brought in August 2012 and due 2023.

TICC CLO's $101.25 million class A notes carry a rate of Libor plus 225 basis points, according to the presentation.

The TICC CLO 2012-1 deal includes $176 million of class A notes at Libor plus 175 bps; $20 million of class B notes at Libor plus 350 bps; $23 million of class C notes at Libor plus 475 bps and $21 million of class D notes at Libor plus 575 bps.

Texas Competitive eyed

Despite a large number of CLO investments in subsidiary Texas Competitive Electric Holdings Co. LLC, indirect parent Energy Future Holdings Corp.'s approaching bankruptcy should have limited impact on CLOs, Moody's Investors Service said in a report.

Energy Future Holdings is expected to announce a material restructuring by the end of the year. The company has about $43 million of coupon payments scheduled on Nov. 1.

More than 250 CLOs hold a total of about $1.4 billion of Texas Competitive's debt, mostly as senior secured first-lien loans, according to Moody's.

"The amount seems large, but it represents only 6% of the $24 billion outstanding in Texas Competitive's first-lien loans," Moody's said. "Further, the average exposure to Texas Competitive in these deals is only 2.24%, and the median exposure, at 1.23%, is even lower. Nevertheless, the performance of a number of CLOs with sizable exposures to Texas Competitive will depend highly on the resolution of EFH's bankruptcy filing."

Texas Competitive has about $30 billion in debt, "but only $15 billion in value, so lenders are looking at heavy losses," Moody's notes.

"Managers of CLOs that have Texas Competitive debt in their portfolios currently have two options: They can either liquidate the asset at a loss versus par or carry it to term and recover their investment based on the outcome of the expected bankruptcy filing," Moody's said. "Managers have already started trading this asset out of their portfolios, but their specific actions will depend on size of exposure, liquidation price, investment cost and deal documentation, particularly the treatment of the investment in collateral quality tests."

KKR Financial Holdings LLC has five of the top 10 CLOs with the largest exposure by amount to Texas Competitive, Moody's said.

According to Moody's, the top 10 CLOs that hold Texas Competitive by amount are:

• KKR Financial CLO 2007-1, Ltd. with $162.8 million principal;

• KKR Financial CLO 2006-1, Ltd. with $69.8 million principal;

• KKR Financial CLO 2007-A, Ltd. with $55.3 million principal;

• KKR Financial CLO 2005-2, Ltd. with $46.5 million principal;

• Apollo Credit Funding I Ltd. with $30.0 million principal;

• KKR Financial CLO 2005-1, Ltd. with $27.9 million principal;

• Eastland CLO, Ltd. with $20.5 million principal;

• Grayson CLO, Ltd. with $20.5 million principal;

• Sandelman Finance 2006-2 Ltd. with $19 million principal; and

• Westchester CLO, Ltd. with $16.3 million principal.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.