Octagon, CreekSource, Telos price CLOs; volume thin; spreads flat to tighter; BBBs firm

By Cristal Cody

Eureka Springs, Ark., April 4 – March primary action picked up with new issuance from CLO managers including Octagon Credit Investors, LLC, CreekSource LLC and Telos Asset Management LLC though volume is expected to stay light over the spring, according to market sources on Monday.

Octagon Credit Investors brought a $509.1 million CLO deal.

CreekSource priced $302.5 million of notes.

Telos Asset Management tapped the market with a $252.47 million transaction.

Last week, Canyon CLO Advisors LLC priced the $451.1 million Canyon Capital CLO 2016-1, Ltd./Canyon Capital CLO 2016-1, LLC deal, while 3i Debt Management Investments Ltd. brought the €413 million Harvest CLO XV Designated Activity Co. offering.

“On a quarterly basis, U.S. CLO volume in the first quarter of 2016 came in at $8.2 [billion], which is the slowest pace of CLO formation since the first quarter of 2012 which saw $6.4 [billion],” J.P. Morgan Securities LLC analysts said in a note.

“While most sectors have rallied to levels at the start of the year, CLOs have yet to fully retrace,” the analysts said. “We think the hesitation is partially a reflection of the tentativeness and lack of strong investor conviction.”

In the secondary market, CLO 2.0/3.0 spread levels tightened from February month end and traded flat to better over the past week, BofA Merrill Lynch analysts said in a note.

AAA-rated notes were quoted at Libor plus 165 basis points, 5 bps better on the week and 20 bps tighter on the month.

CLO AAs were flat over the week but ended the month 15 bps tighter at Libor plus 260 bps, while A-rated notes were unchanged but 40 bps better since February at Libor plus 360 bps.

BBBs traded 25 bps better over the past week, coming in 50 bps tighter on the month at Libor plus 600 bps, the analysts said.

CLO BBs were flat but have retraced 200 bps since late February to Libor plus 1,000 bps, while B-rated tranches traded flat on the week but 100 bps better on the month at Libor plus 1450 bps.

BWIC volumes were light in the previous week at $374.4 million, compared to $383.4 million the prior week, BofA Merrill Lynch said.

Octagon sells CLO

Octagon Credit Investors priced $509.1 million of notes due April 15, 2027 in the Octagon Investment Partners 26, Ltd./Octagon Investment Partners 26, LLC transaction, a market source said.

The CLO sold $310 million of class A senior secured floating-rate notes (Aaa/AAA) at Libor plus 158 bps in the senior tranche.

BofA Merrill Lynch was the placement agent.

Octagon Credit Investors will manage the CLO, which has a non-call period through April 15, 2018. The reinvestment period ends on Oct. 15, 2020.

The deal is backed primarily by broadly syndicated first-lien senior secured loans.

Octagon Credit Investors tapped the primary market with three CLO deals in 2015.

The New York-based credit investment firm was acquired by Conning & Co. in a deal that closed in February.

CreekSource brings CLO

CLO manager CreekSource priced $302.5 million of notes due April 15, 2028 in a new CLO deal via Goldman Sachs & Co., according to a market source.

Mill Creek CLO II, Ltd./Mill Creek CLO II LLC sold $196.5 million of class A floating-rate notes at Libor plus 175 bps at the top of the capital stack.

The CLO has a two-year non-call period and a four-year reinvestment period.

The deal is backed entirely by first-lien senior secured loans.

Proceeds from the offering will be used to purchase a portfolio of about $300 million of mostly senior secured leveraged loans.

CreekSource was in the primary market in 2015 with two CLO deals.

The CLO manager is an affiliate of Carmel, Ind.-based investment management firm 40|86 Advisors, Inc.

Telos prices $252.47 million

Telos Asset Management priced $252.47 million of notes due April 5, 2025 in the Telos 2016-7, Ltd./Telos 2016-7 LLC offering, according to a market source.

The CLO sold $156.6 million of class A floating-rate notes at Libor plus 165 bps in the AAA-rated tranche.

SG Americas Securities LLC was the underwriter.

The CLO has a two-year non-call period and does not have a reinvestment period.

The deal is backed mainly by a static pool of broadly syndicated senior secured loans.

Credit manager Telos Asset Management, a subsidiary of New York-based Tiptree Financial Inc., was last in the CLO primary market in 2014.

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