CLO spreads tighten on heavy secondary volume; THL repays class X notes; new CLOs close

By Cristal Cody

Tupelo, Miss., March 30 – CLOs are improving in step with other securities following government measures to shore up the economy in the wake of the coronavirus.

CLO spreads tightened 100 basis points to 225 bps over the past week on improved technicals and broader risk markets, BofA Securities, Inc. analysts said in a research note on Friday.

“The U.S. CLO market saw a sharp reversal from last week's spread widening as positive news brought new emerging secondary investors into the space,” the analysts said. “Current CLO AAA spreads are back at levels seen on March 18.”

AAAs were then in the mid-200 basis points over Libor discount margin area.

“There was significant trading activity for IG rated bonds that were trading at a discount to par, driving AAA-BBB spreads to tighten 100-225 bp over the week,” the BofA analysts said. “The liquidity crunch in the past couple of weeks seems to have abated with AAA bid list volume falling by half. Buyers seemed to outnumber sellers, specifically for AAAs, for the first time in recent weeks.”

Fitch Ratings said that in response to the “rapidly deteriorating macroeconomic and operational environment linked to the effects of the coronavirus pandemic,” 83% of sector and structured finance asset performance outlooks are negative, up from 21% at the beginning of 2020.

Some CLO tranches have been placed on rating watches.

Commerzbank AG, London Branch’s €22.3 million of class E and €7.3 million of class F tranches from the vintage 2017 Bosphorus CLO III DAC deal were put on rating watch on Friday by Fitch Ratings due to assets in sectors with high exposure to the coronavirus pandemic.

Also on Friday, Fitch placed the class C-R, D-R and E-R notes in the Ivy Hill Middle Market Credit Fund IX, Ltd. vehicle and the class C notes in the Palmer Square Loan Funding 2018-4, Ltd. transaction on rating watch negative after applying a coronavirus sensitivity analysis.

In addition, Fitch revised the outlooks to stable from positive based on coronavirus-related risks on nine tranches of notes from five Palmer Square Capital Management LLC static CLOs that include Palmer Square Loan Funding 2019-1, Ltd., Palmer Square Loan Funding 2019-2, Ltd., Palmer Square Loan Funding 2018-1, Ltd., Palmer Square Loan Funding 2018-2, Ltd. and Palmer Square Loan Funding 2018-3 Ltd.

Meanwhile, THL Credit Advisors LLC paid in full the $3.6 million of class X senior secured floating-rate notes from the THL Credit Wind River 2017-4 CLO Ltd./THL Credit Wind River 2017-4 LLC transaction, according to Fitch on Monday.

The class X notes were issued Dec. 12, 2017 at Libor plus 60 bps. The other tranches in the CLO remain outstanding.

In other action on Monday, several previously reported new issue CLOs closed.

MJX Asset Management LLC closed on the $510.5 million Venture 39 CLO, Ltd./Venture 39 CLO, LLC deal that placed the senior notes at Libor plus 128 bps.

Oak Hill Advisors LP settled its $601.5 million OHA Credit Funding 5, Ltd./OHA Credit Funding 5 LLC offering that priced the senior AAA-rated floating-rate notes at Libor plus 117 bps.

ArrowMark Colorado Holdings LLC also wrapped its $504.5 million Elevation CLO 2020-11, Ltd./Elevation CLO 2020-11 LLC transaction. The CLO had priced the class A floating-rate notes at Libor plus 132 bps.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.