Redding Ridge, Permira price euro CLOs; senior spreads improve; more downgrades eyed

By Cristal Cody

Tupelo, Miss., April 28 – Two CLO managers priced new euro-denominated CLOs, while the dollar-denominated market also is opening back up in April as states and governments start to ease coronavirus-related restrictions.

Redding Ridge Asset Management (UK) LLP priced €288.2 million of notes in the manager’s first euro-denominated broadly syndicated CLO transaction of the year.

Permira Debt Managers Group Holdings Ltd. also priced a new €207.6 million broadly syndicated CLO in the manager’s first deal since 2019.

Euro CLO spreads reached their widest levels since 2012 in March with AAA through BBB spreads recovering 140 basis points to 175 bps this month, while BB euro tranches are flat, according to a Wells Fargo Securities LLC report.

Dollar-denominated CLO AAA through A spreads have tightened 155 bps to 300 bps month over month, the Wells Fargo analysts said.

CLO BBB and BB spreads have firmed 400 bps to 500 bps over the past month.

“We think that CLO AAAs moved wider in March due to heavy secondary supply, often from money managers, and because of relatively high dollar prices, even after over 100 bps of spread widening,” the Wells Fargo analysts said. “We think the market may be underestimating the risk of downgrades on BBB tranches.”

On Tuesday, S&P Global Ratings analysts held an online conference to discuss the impact of Covid-19 on corporate loans and CLOs.

Ratings downgrades are expected to continue across sectors, mostly speculative grade, and defaults are expected to rise significantly, S&P’s analysts said.

“In the space of less than two months, since early March, U.S. CLOs have seen their average collateral credit quality drop to below 'B,' and their average 'CCC' bucket increase to nearly 12% from about 4%,” according to a conference report. “These changes are putting pressure on CLO ratings, especially for lower mezzanine and subordinate tranches.”

U.S. dollar-denominated AAA-rated tranches can withstand upward of 60% of their collateral loans downgraded without suffering a loss, S&P said.

Vintage CLOs, in particular pre-2015 portfolios with a higher average exposure to CCC-rated obligors, may see a greater impact.

“The current round of corporate rating actions has affected CLO collateral pools more than any time since 2008-2009, and at a much more rapid pace,” the S&P report said. “Corporate rating actions during the financial crisis played out over six or more quarters, while with Covid-19, we have seen a greater shift in CLO collateral pools over the past month and a half than during any other comparable period in the history of the CLO market.”

Moody’s Investors Service said in an outlook report on Tuesday that risks to its forecasts are “firmly to the downside.”

“There are significant downside risks to our forecasts in the event that the pandemic is not contained and lockdowns have to be reinstated,” Moody’s said.

Redding Ridge prices

Redding Ridge Asset Management (UK) priced €288.2 million of notes due 2031 in the new broadly syndicated CLO transaction, according to market sources.

Zinnia Finance DAC sold €174 million of class A-1 senior secured floating-rate notes (Aaa/AAA) at Euribor plus 225 bps at the top of the capital structure.

BNP Paribas Securities Corp. was the placement agent.

The CLO is collateralized primarily by broadly syndicated first-lien senior secured term loans and senior secured bonds.

The London-based firm is part of Redding Ridge Asset Management, LLC.

Providus CLO IV prints

Permira Debt Managers Group Holdings priced €207.6 million of notes due July 20, 2033 in its offering, according to market sources.

Providus CLO IV DAC sold €112.2 million of class A floating-rate notes at Euribor plus 145 bps in the AAA-rated tranche.

Citigroup Global Markets Ltd. was the placement agent.

The broadly syndicated CLO is backed primarily by senior secured loans and bonds.

The structured credit firm is based in London.

© 2015 Prospect News.
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