OZLM XIII CLO pricing emerges; Harvest deal also prices; Hildene Leveraged Credit to price

By Rebecca Melvin

New York, July 1 – Pricing emerged on two deals on Wednesday, including a euro-denominated CLO, with a new deal added to the new issue calendar for pricing this summer, according to market sources.

Och-Ziff Loan Management LP priced its third collateralized loan obligation deal for the year so far. OZLM XIII, Ltd./OZLM XIII, LLC is a $511.6 million CLO of notes due July 2027.

The offering includes $209.9 million of class A-1A floating-rate notes at Libor plus 141 basis points; a $100 million class A-1 loan at Libor plus 145 bps; $10 million of class A-1C floating-rate notes at Libor plus 145 bps; and $61.4 million of class A-2 floating-rate notes at Libor plus 201 bps as its top assets.

Citigroup Global Markets Inc. was the placement agent.

Also pricing was 3i Debt Management Investments Ltd.’s €413 million Harvest CLO XII Ltd. CLO transaction, which includes €229.75 million of class A-1 floating-rate notes at Euribor plus 134 bps; €5 million of 1.84% class A-2 fixed-rate notes; €37.75 million of class B-1 floating-rate notes at Euribor plus 205 bps; and €13 million of 2.79% class B-2 fixed-rate notes.

Merrill Lynch International was the arranger.

Meanwhile, Hildene Leveraged Credit LLC plans to price a new arbitrage cash flow CLO, including a $206.5 million tranche of class A-1A notes and a $17.5 million tranche of class A-1B notes at the top of the deal structure, according to a market source.

Spreads on euro CLO 1.0 deals have remained fairly steady with AAA tranches moving in tandem with U.S. CLO 1.0 issues. But spreads have pulled in for euro A and BBB tranches for much of this year, according to BofA Merrill Lynch’s securitization weekly dated June 26.

Volcker to squeeze liquidity

Beginning this month, dealers will face restrictions in owning senior notes issued before 2014 under the Volcker Rule that is taking effect, and it will likely create a significant squeeze on liquidity, according to Wells Fargo Securities analysts.

The effect of the lower liquidity of these bonds can be seen in spread levels. A non-amended 2012-2013 vintage AAA will likely trade about 10 bps wider than a compliant 2014 vintage AAA tranche.

The Volcker Rule’s effect on liquidity has been the recent widening in pre-crisis AAA spreads.

Pre-crisis or CLO 1.0 AAA spreads have weighted average lives of about 1 year to 3 years and now trade at discount margins of about 100 bps to 140 bps. These spreads have widened by 40 bps or more since early May.

“While we do believe that Volcker driven liquidity concerns are behind some of the 1.0 widening, we also believe that the refi market has been cannibalizing the 1.0 investor base,” Wells Fargo analysts David Preston and Mackenzie Miller wrote in the report dated June 26.

This applies, the analysts wrote, to investors looking to employ an investment strategy of buying shorter duration AAA CLO bonds since the refi market provides a cleaner process and wider spreads, for an extra year or two of weighted average life.

More than 40% of the outstanding U.S. CLO market was issued in the last 18 months, or about $181.5 billion. There is about $200 billion of non-compliant CLOs, including $90 billion of pre-crisis vintage and $110 billion in the 2011 to 2013 vintage.

Preston and Miller believe that about 30% of 2012 to 2013 vintage has been amended to be Volcker compliant.

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