LCM prices new CLO AAAs at 155 bps spread; secondary paper forecast to gain new issue demand

By Cristal Cody

Eureka Springs, March 18 – CLO market action picked up on Friday, though volume is expected to stay light over the rest of the year.

LCM Asset Management LLC priced $381.06 million of notes in the firm’s first new CLO deal of the year.

Carlyle Investment Management LLC also priced its Carlyle Global Market Strategies CLO 2016-1, Ltd./Carlyle Global Market Strategies CLO 2016-1 LLC transaction via J.P. Morgan Securities LLC. Final pricing details for Carlyle’s offering were not available by press time.

“Despite the recent rally in the broader credit market, the primary CLO market is unlikely to be the major beneficiary,” according to a Morgan Stanley & Co. LLC note released on Friday.

Morgan Stanley earlier in the month reduced its 2016 issuance forecast to $40 billion to $45 billion from $60 billion and expects demand for CLO equity to be weak this year.

“The U.S. credit cycle has likely turned already,” Morgan Stanley analysts said in the note.

“Issuance volumes are typically lower in the late stage of the cycle, for both loans and CLOs as lending conditions tighten and investors turn risk averse. Secondary CLO valuations are more dislocated and the demand for new issue paper will likely give way to that for secondary paper.”

LCM prices $381.06 million

LCM Asset Management priced $381.06 million of notes due April 20, 2028 in the LCM XXI LP/LCM XXI LLC deal, according to a market source.

The CLO sold $235 million of class A floating-rate notes at Libor plus 155 basis points at the top of the capital structure.

Deutsche Bank Securities Inc. arranged the offering.

The CLO is non-callable until April 20, 2018. The reinvestment period on the deal ends Oct. 20, 2020.

The transaction is backed primarily by broadly syndicated senior secured corporate loans.

LCM priced three new CLOs and refinanced one vintage CLO in 2015.

The New York City-based asset management firm is a subsidiary of Tetragon Financial Group Ltd.

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