Latest news
Latest news
Borrowers take advantage of robust CLO demand to tighten leveraged loan pricing
New realm for ex-Natixis banker, as HSBC Innovation Bank hires
Manager reset the deal for the second time as the end of its reinvestment period approached
More articles
More articles
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Managers priced two CLOs on Thursday, selling the senior bonds at the tightest spread seen since November as 2020 kicks off with a rally in triple-A paper. -
High yield bonds are back on top as the capital markets funding tool of choice for leveraged companies. This week, Techem tweaked its loan repricing to add a heavy bond slug and take advantage of near-record low coupons on offer. That sets 2020 up with a very different tone from the past two years, when an ever-growing CLO market meant bonds struggled to compete with loans, writes Owen Sanderson.
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The CLO market will be closely watching next week as the first re-pricing of a deal with an applicable margin reset (AMR) feature takes place using an auction. It is a crucial first test of the viability of the alternative CLO re-pricing mechanism, said market participants.
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A wave of CLO refinancings and resets rolled in this week, fueled by tightening spreads on triple-A paper, with sources expecting the trend to continue alongside a slowly building new issue pipeline.
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Some of the largest issuers in the leveraged finance universe are repricing their loans, cutting 50bp or more from their margins on the back of strong market conditions and proven performance since the loans were raised. That is putting pressure on CLO managers and equity holders, whose liabilities are tightening too, but more slowly, blocking repricing of the bonds and squeezing returns, write Owen Sanderson and Tom Brown.
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Dutch chemicals giant Nouryon is attempting an elephantine repricing of a €5.6bn loan. Nouryon is following Spanish Fluidra, a pool manufacturer, which announced a €300m repricing on Tuesday, and UK-based data company Refinitiv, which set a more favourable price for its €2.33bn loan last week.
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The UK’s bank regulator, once one of the world’s toughest, has eased some of its conditions around the synthetic risk transfer market, allowing the UK’s biggest lenders to sell balance sheet CLOs on similar terms to their European Central Bank-regulated peers.
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European corporate bond specialists are keeping an eagle-like watch on how well new issues trade in the immediate aftermarket. Any widening could kick off a trend towards higher new issue premiums.
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The middle market segment of the CLO industry is attracting the attention of more investors this year amid enduring low yields in fixed income as higher returns on middle market paper and stronger covenants steer more traditional CLO buyers into the space.
