Crestline Denali preps $358.28 million CLO; BofA Merrill Lynch cuts forecast; spreads ease

By Cristal Cody

Tupelo, Miss., Feb. 16 – Crestline Denali Capital, LP plans to return to the CLO primary market for the first time since February 2015 with a $358.28 million Rule 144A-eligible deal.

While primary action remains extremely light, some CLO deals are in the pipeline to price this month.

Still, persistent market volatility that has kept issuance thin this year spurred BofA Merrill Lynch analysts to reduce their 2016 CLO issuance forecast to $45 billion from $70 billion, according to a new market note.

CLO managers have priced $826 million in two broadly syndicated CLO deals year to date.

“Given that volatility has caused the CLO primary market to largely shut down, our $45 [billion] issuance forecast is highly dependent on our assumption about when volatility abates and allows the CLO primary market to re-open,” BofA Merrill Lynch analysts said in the note. “Given that volatility has picked up recently, we expect it to take a while for markets to stabilize and re-open.”

In the secondary market, BWIC volumes were $400 million over the previous week and mezzanine tranches widened, according to BofA Merrill Lynch.

“Broad market volatility continued to impact the secondary market this week with 2.0/3.0 mezzanine spreads pushing wider by 25-50 [basis points] to 400, 600, 1100 and 1450 [bps] from single-A to single-B,” the analysts said.

Crestline Denali deal emerges

Crestline Denali Capital plans to price $358.28 million of notes in the Denali Capital CLO XII, Ltd./Denali Capital CLO XII LLC deal, according to a market source.

The offering includes $192.25 million of class A-1 floating-rate notes (//AAA); $30 million of class A-2 fixed-rate notes (//AAA); $22.88 million of class B-1 floating-rate notes; $20 million of class B-2 fixed-rate notes; $20.35 million of class C floating-rate notes; $19 million of class D floating-rate notes; $17.5 million of class E floating-rate notes; $4.9 million of class F floating-rate notes and $31.4 million of subordinated notes.

BNP Paribas Securities Corp. is the placement agent.

The CLO, backed primarily by first-lien senior secured loans, will have a two-year non-call period and a four-year reinvestment period.

Proceeds from the deal will be used to purchase a portfolio of about $350 million of mostly senior secured leveraged loans.

Crestline Denali was last in the CLO primary market on Feb. 25, 2015 with the $413.68 million Denali Capital CLO XI, Ltd./Denali Capital CLO XI LLC transaction.

The asset management firm is based in Oak Brook, Ill.

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