Pricing emerges for $800.85 million Madison Park Funding CLO, $406 million Voya CLO

By Rebecca Melvin

New York, Jan. 2 – Pricing emerged on two collateralized loan obligations on Wednesday as market participants started 2019 with expectations for continued stability in the CLO market amid weakening loan quality.

The financial markets were closed for the New Year’s Day holiday on Tuesday.

Economic growth and a benign maturity wall will foster stable CLO credit performance in 2019, although deteriorating loan credit quality will ultimately lead to a rise in collateral defaults.

CLOs will not immediately be hurt by worsening recovery rate expectations because of the low level of absolute defaults expected in 2019, according to research published by Moody’s Investors Service.

Meanwhile, CLO issuance will continue to be strong, although it is expected to normalize from 2018 levels as reset, refinancing and reissuance activity moderates, according to Moody’s.

Among recent new issues, Credit Suisse Asset Management, LLC priced an $800.85 million offering of notes due Jan. 22, 2031 in the Madison Park Funding XXXII Ltd./Madison Park Funding XXXII LLC collateralized loan obligation transaction.

The CLO, priced via J.P. Morgan Securities LLC as placement agent, sold $2 million of class X floating-rate notes at Libor plus 60 basis points, $480 million of class A-1 floating-rate notes at Libor plus 120 bps, $36 million of 4.5% class A-2 fixed-rate notes and $88 million of class B floating-rate notes at Libor plus 210 bps.

In the next credit group, the Madison Park Funding XXXII CLO priced $56 million of class C deferrable floating-rate notes at Libor plus 310 bps, $42 million of class D deferrable floating-rate notes at Libor plus 410 bps, $30 million of class E deferrable floating-rate notes at Libor plus 735 bps and $80 million of subordinated notes.

In addition, Voya Alternative Asset Management LLC priced $406 million of notes due Jan. 15, 2032 in a broadly syndicated collateralized loan obligation offering, called Voya CLO 2018-4, Ltd./Voya CLO 2018-4 LLC.

This CLO sold $219.47 million of class A-1A senior secured floating-rate notes at Libor plus 122 bps; $16.53 million of 4.25% class A-1B senior secured fixed-rate notes, $12 million of class A-2A senior secured floating-rate notes at Libor plus 165 bps; $12 million of 4.75% class A-2B senior secured fixed-rate notes and $44 million of class B senior secured floating-rate notes at Libor plus 185 bps.

The CLO also sold $20 million of class C-1 secured deferrable floating-rate notes at Libor plus 225 bps; $2 million of 5.35% class C-2 fixed-rate notes, $22 million of class D secured deferrable floating-rate notes at Libor plus 360 bps, $16 million of class E deferrable floating-rate notes at Libor plus 630 bps, $6 million of class F deferrable floating-rate notes at Libor plus 950 bps and a $36 million tranche of subordinated notes.

Morgan Stanley & Co. LLC arranged the offering.

The Madison Park Funding CLO will close on Jan. 31, and the Voya CLO will close on Jan. 29.

U.S. CLOs are expected to face a growing number of risks in 2019, according to Moody’s. Those challenges include proposed amendments requiring little or no investor consent, a wide latitude to classify certain types of trades as “exchanges,” collateral quality test adjustments that alter CLOs risk profiles, and relation of trading provisions that increase the potential for par erosion.

These changes will occur as issuers seek to loosen structures to expand options in the face of gradual deterioration in credit quality in a late cycle loan market.

In addition, there is risk around the timing and magnitude of loan defaults in the downturn and transitioning to alternative rates in anticipation of the phase out of Libor.

© 2015 Prospect News.
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