Octagon reprices $32.5 million notes; CLO supply light; pandemic weighs on market

By Cristal Cody

Tupelo, Miss., Sept. 1 – In CLO pricing activity, Octagon Credit Investors, LLC refinanced $32.5 million of fixed-rate notes from a 2018 broadly syndicated CLO offering.

Meanwhile, Credit Suisse Asset Management, LLC closed Tuesday on its previously reported $596.2 million Madison Park Funding XLVI Ltd./Madison Park Funding XLVI LLC offering, which priced the $360 million of class A floating-rate notes at Libor plus 160 basis points.

Also, Five Arrows Managers LLP closed Tuesday on its €297.35 million Contego CLO VIII DAC deal. The CLO priced €175.5 million of the class A floating-rate notes at Euribor plus 145 bps.

CLO volume is expected to be light until after the Labor Day holiday.

Year to date, about $48 billion of dollar-denominated broadly syndicated CLOs and over €13 billion of euro-denominated CLOs have priced, while about $26 billion of vintage CLOs have been refinanced.

The Covid-19 pandemic weighted on the market in the second quarter, according to a DBRS Morningstar second-quarter CLO report on Monday.

DBRS Morningstar said that across 51 publicly rated CLOs in the report, 49 transactions experienced a decrease in overcollateralization quarter over quarter.

“The OC declines ranged from as low as 0.18% to as high as 3.64%,” the agency said. “As the global pandemic continues to disrupt businesses and operations, liquidity and revenue concerns have emerged among select industries, namely aerospace and defense, automotive, hotel, gaming and leisure, oil and gas, and retail.”

Interest coverage ratio metrics deteriorated in the second quarter, and fewer transactions passed their collateral quality tests, such as weighted average spread and weighted average coupon, or did not meet ratings thresholds.

Broadly syndicated CLOs generally have a 7.5% cap for CCC obligations, whereas middle-market CLOs usually have higher caps, in the 15% to 20% range, according to the report.

“With the concentration of underlying collateral in the CCC bucket increased since the last quarter, most transactions in our sample did not meet their respective thresholds,” the agency said. “For example, in June, 41 transactions breached their 7.5% thresholds, by as little as 0.1% in Auburn CLO to as much as 9.4% in ICG US CLO 2017-2. When a transaction breaches any of its concentration limitations, a haircut is applied on the collateral amount in excess of the cap and the collateral manager is typically required to maintain or improve the level of such collateral.”

Octagon reprices

Octagon Credit Investors refinanced $32.5 million of notes from the vintage 2018 Octagon Investment Partners 38, Ltd./Octagon Investment Partners 38, LLC deal, according to market sources.

The CLO sold $32.5 million of class A-3BR fixed-rate notes due July 20, 2030 with a 2.39% coupon.

Octagon originally issued $32.5 million of class A-3B notes with a 4.5% coupon on Aug. 23, 2018 as part of a $664 million CLO transaction.

BofA Securities, Inc. was the refinancing agent.

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

Octagon Credit Investors is a New York-based credit investment firm that is majority owned by Conning & Co.

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