CLO NEWSLETTER
Trends Surge in boom-era debt signals overheating Oct 18, 2013; Source: FT.com; By: Tracy Alloway Five years of the Federal Reserve’s ultra-low interest rates have made the market for loans to highly indebted companies white hot in recent years, as investors clamor for the higher yielding assets and corporate rush to refinance old debt. More than $499bn of loans have been issued so far this year($535bn in 2007) out of which “cov-lite” loans account for more than $200bn($100bn in 2007) as per data from S&P Capital IQ. Cov-Lites are loans that come without some of the traditional protection for lenders and are generally given to more robust companies. The default rate and recovery rate for cov-lite loans, between 2007 to 2010 was 8.7% and 89.6% respectively; as against 14.6% and 81.5% for normal loans, as per S&P data. For more: Click here Loan Market Growth to Spur More Volatility, LSTA Panelists Say Oct 17, 2013; Source: Bloomberg; By Sridhar Natarajan Record inflows in funds that invest in leveraged loans will spur the growth of the market and result in more volatility, according to panelists at the 18th annual conference by the Loan Syndications and Trading Association in New York. The Federal Reserve’s policy of keeping interest rates at about zero to bolster growth is pushing investors into riskier assets such as leveraged loans. More than half the attendees polled at the conference expect the loan market to grow and become more volatile over the next five years. For more: Click here Fitch: Europe SME CLOs see deteriorating asset performance Oct 15, 2013; Source: Reuters & Fitch Ratings Fitch Ratings says in its latest European SME CLO Performance Tracker that SME CLOs continued to see deteriorating asset performance since June 2012. Two SME CLO securitisations were partially placed with investors over the last 12 months. In particular, the Italian Berica PMI Srl sold the senior notes at a spread of 240bp over Euribor. The notes benefited from substantial credit enhancement at 43.2%. Nevertheless, the average spread on the loans of 240bp was evidence that SME securitisations were still not economically viable. Hence, most banks in Italy and Spain retain SME CLOs and use them for repo funding with the ECB. The average spread on senior notes in retained transactions is around 50bp. For more: Click here European leveraged loan activity expected to fall in Q4 Oct 14, 2013; Source: Reuters Deal flow in the European leveraged loan market is expected to fall in the remainder of this year as a number of buyout auction processes have concluded or fallen away. The lack of M&A in 2013 has led to deal flow being dominated by refinancing and dividend recapitalizations. So far this year, 71 percent of leveraged loan activity in Europe has been refinancing-related. Private equity firms are going to have to lift the price they will pay for a deal if they are going to compete against cash-rich corporates. The level of liquidity in the European leveraged finance market should give sponsors confidence that cash will be available to back the larger bids. For more: Click here
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CLO NEWSLETTER
Europe: PE firms load up on dividends via leveraged loan, high yield bond marts Oct 11, 2013; Source: LeveragedLoan.com; By: Unknown Private equity sponsors have used the combined strength of the European leveraged loan and high-yield markets to pay themselves €5.3 billion of dividends in the year to the end of September. This is a record for the post-financial-crisis era, and is roughly evenly split between the loan and high-yield markets.
For more: Click here Fears grow over CLO pipeline as senior buyers demand 150bp Oct 10, 2013; Source: Creditflux The average price of the debt rose 4.6 percent this year to 94.15 cents on the euro, the highest since Jan. 10, 2008, when prices reached 94.43 cents, according to Standard & Poor’s European Leveraged Loan Index. Private-equity firms such as KKR & Co. and Providence Equity Partners are capitalizing on the demand to increase debt financing for dividend payouts to 7.3 billion euros ($9.9 billion) this year, almost triple the amount for the same period of 2012, according to Fitch Ratings. For more: Click here Middle market issuers load up on debt amid hot leveraged loan segment Oct 09, 2013; Source: LeveragedLoan.com; By Kelly Thompson Smaller companies are loading up on debt like never before. In fact, lenders this year have let multiples fly despite often citing lower leverage among the benefits of trading in liquidity for investing downmarket. S&P Capital IQ LCD’s third-quarter data illustrates the trend. Year-to-date, total leverage has climbed to an average of 4.9x, a lofty level in itself, but more stunning for another reason: it’s the first time the middle market has eclipsed the large corporate market, which averages 4.7x for the same period. For more: Click here Leveraged Loans: With Dell, Hilton Done, M&A Calendar Hits Lowest Level Since May Oct 09, 2013; Source: Forbes; By: Steve Miller Indeed, the M&A forward calendar is at its lowest point since May of this year. And most loan market participants believe that the overall supply of leveraged loans will continue to ebb in the remaining months of 2013, given the smaller calendar of new-issue M&A loans. As of Oct. 2, LCD tracked $23.3 billion of such institutional loans in the offing, down from a recent high of $31 billion at the end of August.
For more: Click here
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CLO NEWSLETTER
Leveraged-Loan Prices Soar to Highest Since 2008 in Europe Oct 09, 2013; Source: Bloomberg; By: Patricia Kuo & Julie Miecamp The average price of the debt rose 4.6 percent this year to 94.15 cents on the euro, the highest since Jan. 10, 2008, when prices reached 94.43 cents, according to Standard & Poor’s European Leveraged Loan Index. Private-equity firms such as KKR & Co. and Providence Equity Partners are capitalizing on the demand to increase debt financing for dividend payouts to 7.3 billion euros ($9.9 billion) this year, almost triple the amount for the same period of 2012, according to Fitch Ratings. For more: Click here High Yield and Bank Loan Outlook - October 2013 Oct 08, 2013; Source: Guggenheim Partners Over the past year, the technical backdrop in the loan market has led to meaningful spread compression. Attractive relative value of bank loans and a renewed focus on interest-rate risk have resulted in positive performance driven by record-setting inflows into loan funds and robust collateralized loan obligation (CLO) issuance. In contrast, flows into high yield bond funds have been extremely volatile, contributing to mixed monthly returns. As technical dynamics can quickly change, this may be an opportune time to consider the implications of the increased prominence of retail capital and its potential to exacerbate policy-driven volatility. For more: Click here U.S. Default Rate Falls to 2.6% in Q3 – Moody’s Oct 08, 2013; Source: Barron’s Blog; By: Michael Aneiro Globally, the trailing 12-month speculative-grade default rate finished the third quarter at 2.8%, down from 2.9% in the second quarter and 3.3% in the same period last year. In Europe, the default rate came in at 3.3% in the third quarter, down from the second quarter’s 3.4% and 3.6% at this time last year. Moody’s forecasts that the global speculative-grade default rate will finish this year at 3.0%, before falling to 2.7% by the end of the third quarter next year. For more: Click here Leveraged loan markets grapple with heavy September supply Oct 07, 2013; Source: Reuters; By: Natalie Wright Leveraged loan investors in U.S. are digesting a massive $37 billion in institutional loans issued in September. Average secondary prices have fallen about 24bp since the Federal Reserve surprised the markets and held off on tapering two weeks ago, to end at 99.3 as of October 4. The JP Morgan US leveraged loan index yield to a three-year takeout increased to 5.53 percent from 5.46 percent over the same period. For more: Click here US CLO market prepares battle against extinction Oct 04, 2013; Source: Reuters US CLO market players are poised to ratchet up pressure on regulators to relax proposed rules on risk retention, which they say will drastically shrink the burgeoning market, or even kill it off altogether. Final credit risk retention rules proposed by regulators on August 28 added additional tweaks, which if applied, are expected to dramatically shrink a market which has hit a post-crisis record of around US$58 billion this year. The latest proposals, specifying that CLO managers acting as sponsors must retain 5% of the risk in a CLO by either owning a vertical strip or a horizontal equity slice, will also prohibit access to cashflows on the equity until the senior notes have amortized. In addition, if lead arrangers act as the agent instead, they must now hold the loans for the life of the debt and are not able to hedge that risk. Both proposals have market participants up in arms. For more: Click here
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CLO NEWSLETTER
Near-term loan default outlook remains benign, LCD survey says Oct 03, 2013; Source: LeveragedLoan.com; By: Steve Miller On average, loan managers expect the loan default rate by principal amount to end 2013 at 2.15%, according to LCD’s latest quarterly buyside poll, taken in early September. As these forecasts imply, managers remain constructive on the default outlook. Indeed, the consensus suggests defaults for the balance of 2013 will be negligible. Moreover, the predicted rate for September 2014 means managers reckon that default activity during the next 12 months (again, excluding TXU) would increase only modestly, to $14 billion, from $11.3 billion over the past 12 months. For more: Click here September CLO issuance clocks in at $5.35B; $57.91B YTD Oct 02, 2013; Source: LeveragedLoan.com; By The U.S. CLO market in September logged $5.35 billion via 11 vehicles, according to S&P Capital IQ/LCD. That brings the nine-month 2013 total to $57.91 billion (there was a $518 million CLO issued yesterday that’s not included in the total). On a quarterly basis, CLO issuance fell to $15.1 billion in the third quarter, from $16 billion in the second quarter and from a post-credit-crunch high of $26.3 billion during the first three months of the year. For more: Click here Leveraged loan volume slows in 3Q but keeps record pace for 2013 Oct 01, 2013; Source: LeveragedLoan.com; Author: Unknown After June’s shallow correction, the U.S. leveraged loan market was flat-footed to start the third quarter, though it regained its stride by August amid strong technical conditions and a spike in M&A volume. On the whole, volume eased to $124.8 billion during the third quarter – the lowest sum since the second quarter of 2012 – from $163.7 billion during the prior three months. Likewise, new-issue institutional activity dropped to $100.7 billion – the lowest level since the fourth quarter of 2012 – from $116.9 billion. For more: Click here Leveraged loans: Mutual Fund Assets Continue Win Streak, Hit Record High Sept 30, 2013; Source: Forbes Assets under management of loan mutual funds are grew $8.1 billion, or by 5.8% in August, to a record $145.7 billion, according to data from Lipper FMI. 1st Half of September also saw $2.28bn pumped into the asset class. Inflows continued to surge for the eighth straight month. Indeed, between January and August, loan fund AUM grew by $49.2 billion, or 51%, from $96.5 billion at year-end. September is likely to add another $7bn and take the tally up to $152-153bn. For more: Click here
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CLO NEWSLETTER
Investing New Demand Holds Promise for CLO Issuers Oct 18, 2013; Source: ABAlert.com New York Life, Royal Bank of Canada and Societe Generale are looking into large-scale investments in the top classes of new collateralized loan obligations in the U.S. Each of the projects is still in the early stages, with no changes in the institutions’ buying activities likely to take place until the first quarter of next year, at the earliest. Still, their emergence as major buyers would be a welcome development among issuers — who have been struggling to price deals amid a shortage of senior investors. The institutions’ interest adds to a saga that has been developing in the investment community for some time. Responding to a mix of stricter FDIC policies and low returns, institutions including Bank of Tokyo-Mitsubishi UFJ, Citigroup, J.P. Morgan, Norinchukin Bank, Prudential Investment, Sumitomo Mitsui Banking and Wells Fargo cut back on their purchases of triple-A-rated CLO securities heading into midyear. For more: Click here USD10bn trade boosts Deutsche Bank's CLO hedging Oct 11, 2013; Source: Reuters; By: Owen Sanderson Deutsche Bank sold off the risk on more than USD10bn of loans in CLO format at the end of September, in a decisive shift of the bank's portfolio hedging away from CDS and towards CLOs. The German bank bought USD840m and EUR150m of protection, representing the first 10% of losses on USD8.4bn and EUR1.5bn books of corporate loans. This is by far the largest risk transfer CLO since the onset of the financial crisis, with the next largest deal being Papillon from Barclays, which referenced EUR6bn of corporate risk. Deutsche's deals are called CRAFT 2013-1 and 2013-2. Deutsche has a regular programme of CLO issuance to hedge its loan book through the CRAFT shelf. There were, for example, four deals from the programme in 2011. For more: Click here Cairn capitalises on CLO revival Oct 09, 2013; Source: eFinancialNews.com; By: Matt Turner Revenues at structured credit specialist Cairn Capital, which earlier this year launched one of the first European collateralised loan obligations since the financial crisis, surpassed £30 million in 2012 thanks to strong fund performance and an 80% revenue increase at its restructuring division. Cairn Capital Group Limited posted accounts for the year to December 31, 2012 at Companies House earlier this week, showing revenues of £30.7 million, up around 18% from £26.1 million a year previous. Profits before tax increased more than a third to £6.5 million, with net profit at £5.4 million. The directors recommended a dividend payment of £4.5 million For more: Click here Alliant Sets Acquisition Loan Rate; Learfield Prices LBO Debt Oct 09, 2013; Source: Bloomberg; By: Krista Giovacco The world’s largest ammunition maker will pay interest at 2 percentage points more than the London Interbank offered rate on a $1.01 billion portion, and 2.75 percentage points to 3 percentage points more than Libor on a $250 million slice, with a 0.75 percent minimum on the lending benchmark, according to a lender presentation in a regulatory filing yesterday. The deal, which supports the $985 million purchase of binocular-maker Bushnell from MidOcean Partners, includes a $600 million revolving line of credit that will pay interest at 2 percentage points more than Libor. For more: Click here
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CLO NEWSLETTER
NIBC and Aviva link up on revitalised UK infrastructure CLO Oct 08, 2013; Source: Creditflux NIBC and Aviva Investors have announced the restructuring of a legacy infrastructure CLO (a deal backed by loans extended to publicprivate partnership schemes in the UK). The transaction, known as Adriana Infrastructure CLO 2008-1, was first launched in April 2008. Having originated the loans and arranged the CLO, NIBC’s role does not end there with the bank also responsible for managing the transaction. However only light management is expected with the CLO being static. The announcement also reveals that Aviva has acquired the entire £477.8 million ($767.6 million) first-pay tranche. For more: Click here Investors mob buyout loan for Campbell Soup's European brands Oct 04, 2013; Source: Reuters; By: Claire Ruckin The strong response to the deal backing CVC's purchase of Campbell Soup's European brands, shows demand from investors for European leveraged loans. Money has been pouring into floating rate leveraged loans in Europe and the US as investors try to hedge against possible interest rate rises. The success of the deal was attributed to the strength of sponsor CVC, the well-regarded food sector and a general lack of new leveraged loans to invest in.
For more: Click here Vivarte in talks to reset loan covenants Oct 04, 2013; Source: Reuters; By: Claire Ruckin The company has also breached August's covenant tests, investors said, but lenders are confident that a long-term solution can be found. Vivarte has around 600 million euros of cash on its balance sheet and does not require a full debt restructuring as it is able to meet debt repayments for the next three years. For more: Click here The Carlyle Group closes EUR335m European CLO Oct 03, 2013; Source: Hedgeweek.com Alternative asset manager The Carlyle Group has closed a EUR335m collateralised loan obligation (CLO) fund, the firm’s second new-issue CLO in Europe this year. Carlyle GMS Euro CLO 2013-2 will invest predominantly in new issue and secondary market European senior secured bank loans. Citibank arranged the transaction. Carlyle’s first new-issue European CLO in 2013 closed in June at EUR350m. According to S&P Capital IQ LCD, aggregate CLO issuance in 2013 in Europe now stands at approximately EUR4.5bn from 14 deals, including Carlyle GMS Euro CLO 2013-1 and 2013-2. In February 2012, Carlyle made its first CLO purchase in Europe when it acquired management contracts on EUR2.1bn in European CLO assets from Highland Capital Management. For more: Click here
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CLO NEWSLETTER
Sound Harbor and Macquarie partner to launch CLOs Oct 02, 2013; Source: Leveragedloan.com Sound Harbor Partners has formed a joint partnership with Macquarie Credit Investment Management to launch a series of CLO funds, according to a release. The partnership will focus on CLO fund investment and management, with Macquarie providing strategic capital and other resources to complement Sound Harbor’s investment capabilities in corporate credit. For more: Click here Scandlines to Draw on Leveraged Loan Demand for Debt Refinancing Oct 02, 2013; Source: Businessweek; By: Patricia Kuo Scandlines’s refunding plan follows an attempted sale of the business in July that attracted lower-than-expected bids. Buyout firms raised $94 billion of leveraged loans for the companies they own in Europe this year, compared with $30.9 billion in the same period of 2012, according to data compiled by Bloomberg. Concern that central banks will start raising interest rates has boosted demand for floating-rate corporate credit such as leveraged loans, driving margins on the debt down to 449 basis points more than benchmark rates from 474 basis points in the first half of the year, Bloomberg data show. For more: Click here
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CLO NEWSLETTER
Ratings Fitch Downgrades Russia's Rosneft to 'BBB-'; off RWN; Outlook Stable Oct 18, 2013; Source: Reuters & Fitch Ratings Rosneft is the world's largest listed oil company with a 2012 hydrocarbon output of around 4.2 million barrels of oil equivalent per day (mmboe/d), excluding equity stakes. It controls almost 40% of crude output in Russia and aims to become a major natural gas producer. The downgrade reflects Fitch's forecast that Rosneft's funds from operations (FFO) adjusted net leverage will increase sharply and fluctuate around 3x in 2013-2017. The 'BBB-' IDR incorporates the rating agency’s assessment of Rosneft's strategy, capex plans and funding options, and includes a one-notch uplift for support from the Russian Federation (BBB/Stable), Rosneft's majority shareholder. For more: Click here Moody's: Newfoundland CLO I Limited ratings unaffected by trust deed amendments Oct 17, 2013; Source: Moody’s Moody's Investors Service has determined that the entry of Newfoundland CLO I Limited (the "Issuer"), a managed cash balance sheet CLO, into a Fifth Supplemental Trust Deed between the Issuer and the rest of the transaction parties dated 16 October 2013 (the "Amended Agreement") and performance of the activities contemplated therein will not in and of itself and at this time cause the current Moody's ratings of the Notes issued by the Issuer to be reduced or withdrawn. For more: Click here Moody's: Newfoundland CLO I Limited ratings unaffected by trust deed amendments Oct 17, 2013; Source: Moody’s Moody's Investors Service has determined that the entry of Newfoundland CLO I Limited (the "Issuer"), a managed cash balance sheet CLO, into a Fifth Supplemental Trust Deed between the Issuer and the rest of the transaction parties dated 16 October 2013 (the "Amended Agreement") and performance of the activities contemplated therein will not in and of itself and at this time cause the current Moody's ratings of the Notes issued by the Issuer to be reduced or withdrawn. For more: Click here Moody's upgrades EUR 54.6m CLO notes of RMF Euro CDO IV PLC Oct 16, 2013; Source: Moody’s Moody's Investors Service announced today that it has upgraded the rating of the following notes issued by RMF Euro CDO IV PLC: ....EUR39.3M Class II Senior Secured Floating Rate Notes, due 2022, Upgraded to Aaa (sf); previously on Nov 30, 2012 Upgraded to Aa1 (sf) ....EUR15.3M Class III Deferrable Mezzanine Floating Rate Notes, due 2022, Upgraded to Aa2 (sf); previously on Nov 30, 2012 Upgraded to A1 (sf) Moody's also affirmed the ratings of the following notes: ....EUR310.2M (current outstanding balance of EUR171.8M) Class I Senior Secured Floating Rate Notes, due 2022, Affirmed Aaa (sf); previously on Nov 30, 2012 Upgraded to Aaa (sf) For more: Click here
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CLO NEWSLETTER
Moody's upgrades EUR 54.6m CLO notes of RMF Euro CDO IV PLC Oct 15, 2013; Source: Moody’s Moody's Investors Service announced today that it has upgraded the rating of the A2 notes issued by Adriana Infrastructure CLO 2008-I B.V., following a restructuring of the transaction which closed on 23 September 2013. Issuer: Adriana Infrastructure CLO 2008-I B.V. ....GBP75,228.55 Class A2 Notes, Upgraded to Aaa (sf); previously on Apr 14, 2008 Class A-2 GBP 0.01M Assigned A3 (sf) RATINGS RATIONALE We upgraded to Aaa (sf) from A3 (sf), a six-notch upgrade, the rating of the Class A2 notes issued by Adriana Infrastructure CLO 2008-1 B.V., following a restructuring of the transaction. The restructuring essentially consisted of 1) an increase in the credit enhancement of the Class A2 notes (from 6.74% at closing to 22.99% after restructuring), provided via subordination of the Class B notes, 2) restrictions on the portfolio replenishment and 3) a tightening of the eligibility criteria. For more: Click here Moody's upgrades EUR 64.5m CLO notes of Silver Birch CLO I B.V. Oct 15, 2013; Source: Moody’s Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Silver Birch CLO I B.V.: ....EUR18M Class B Senior Secured Floating Rate Notes due 2020, Upgraded to Aaa (sf); previously on Sep 23, 2011 Upgraded to Aa2 (sf) ....EUR21M Class C Senior Secured Deferrable Floating Rate Notes due 2020, Upgraded to A1 (sf); previously on Sep 23, 2011 Upgraded to Baa1 (sf) ....EUR18M Class D Senior Secured Deferrable Floating Rate Notes due 2020, Upgraded to Ba1 (sf); previously on Sep 23, 2011 Upgraded to B1 (sf) For more: Click here
People Eaton Vance to tap Howard Tiffen as advisor to its floating-rate group Oct 16, 2013; Source: Leveragedloan.com Eaton Vance is expected to announce that the firm is bringing on loan market veteran Howard Tiffen as senior portfolio advisor to its floating-rate group, according to market sources. Tiffen most recently ran the loan portfolio group at Van Kampen Investments. He will report to Scott Page and Craig Russ, sources added. For more: Click here Christopher Lovgren has been appointed global head of loan syndication at Natixis in London. Sept 26, 2013; Source: Hedgeweek.com Lovgren will report to Alain Gallois, global head of the debt platform and fixed-income and treasury sales, and locally to Olivier Allard, head of capital markets in London. Lovgren began his career in 1995 with Société Générale CIB (SG CIB) in Paris as deputy relationship manager before becoming associate, loan syndications for the EMEA region. In 2000, he was appointed director, loan syndications at UBS Warburg in London, and in 2004 he became director, leveraged loan distribution at SG CIB, London For more: Click here
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CLO NEWSLETTER
Chris Graham Vice President Head of Client Engagements
Office: +1 (212) 679-8610 Mobile: +1 (585) 503-4048
Sandeep Baid Director Business Development – Research Office +44 (0) 207-138-0945 Mobile +44 (0) 7500-936-043
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