Redding, Partners, Zais wrap deals; CLOs face downgrade pressure; high-grade paper better

By Cristal Cody

Tupelo, Miss., March 26 – In CLO market action on Thursday, several managers closed on previously reported broadly syndicated deals.

Redding Ridge Asset Management, LLC wrapped its $501.5 million RR 8 Ltd./RR 8 LLC deal, which placed the senior tranche at Libor plus 123 basis points.

Partners Group US Management CLO LLC closed on its $409.5 million Pikes Peak CLO 5, Ltd. transaction. The CLO had priced the class A senior secured floating-rate notes at Libor plus 130 bps.

Zais Group, LLC also closed Thursday on its $299.5 million Zais CLO 14 Ltd./Zais CLO 14 LLC offering. The CLO had sold the senior notes at Libor plus 140 bps.

Meanwhile, ratings downgrades have been heavy over the past two weeks due to the coronavirus’ impact.

“The increased pace of downgrades could result in CLO bond downgrades, particularly for lower mezz bonds,” according to a BofA Securities, Inc. research note on Thursday.

An “unprecedented” $45 billion of loans in CLOs, representing 8% of the average portfolio, have been downgraded or put on negative watch by S&P Global Ratings over the past few weeks, the BofA analysts said.

Moody’s Investors Service also has downgraded or placed on negative watch about $40 billion of loans in CLOs, according to the report.

“A large share of loans in the Covid sectors are trading at distressed levels: one-third of BB- and B- loans are currently trading below $60,” the BofA analysts said. “While downgrades have remained relatively benign in the CLO 2.0 space, we see potential for the rate of downgrades to pick up, particularly for lower mezz tranches, following the wave of loan downgrades in the past few weeks.”

Secondary volume strong

Elsewhere, secondary trading volume remains strong in high-grade CBO/CDO/CLO securities.

On Wednesday, $1.99 billion of high-grade CBO/CDO/CLO paper traded, compared to $1.7 billion of volume on Tuesday and $3.19 billion on Monday, according to Trace data.

Also, $241.18 million of lower-rated issues were traded over the previous session, up from $170.28 million on Tuesday and $50.73 million at the start of the week.

High-grade CBO/CDO/CLO paper improved to an average price of 87.90 on Wednesday from 76.80 on Tuesday and 80.70 on Monday.

Non-high-grade CBO/CDO/CLO issues were modestly softer at an average price of 54 on Wednesday from 54.20 on Tuesday but improved from 50.80 on Monday.

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