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Pricing on junior mezzanine notes is diverging as managers have to cope with difficult conditions
Manager extends non-call by a year, tapping into market for shorter-dated deals
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Bank of America has poached a CLO structurer from JP Morgan to add to its CLO team. -
AGL Credit Management has issued a new CLO with ESG language, a $600m deal priced via Bank of America. The manager has committed in deal documents not to invest in certain sectors that do not meet basic requirements.
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Spreads on European CLOs have widened at the top of the ratings stack after two big US investors scaled down their investment and supply rose thanks to a wave of refinancing. With Japanese investors withdrawing from deals at the point they are refinanced adding to the supply and demand imbalance, new supply is being held back, according to several sources.
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Some CLO sources expect increased fears about inflation to enhance demand for CLO liabilities, as investors seek floating rate instruments. But other sources see the market taking a pause as investors assess the broader impact of inflation on fixed income and on relative value with corporate bonds. Sustained inflation could also hurt corporate profitability, and therefore the credit quality of CLO obligors.
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RBC Capital Markets has tapped a CLO director at Citi to lead its CLO structuring desk.
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CLO refi and reset activity has departed from its usual forms, with some managers resetting a single deal in a limited time frame, while others take the opportunity to switch tranches from fixed to floating, or focus refi efforts on a limited number of tranches. Managers don't want to lose the opportunity presented by current market conditions to save costs, and are seeking different solutions to optimise their structures.
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TCW Asset Management has reset a CLO issued in the early phase of Covid for the second time, extending the life of the deal to five years.
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Kayne Anderson Capital has refinanced the mezzanine tranches of a deal originally priced in 2019 in an unusual repricing that left the senior notes intact.
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Credit insurers are said to be dipping into CLO equity risk — not as cash investors allocating to alternative managers, but through directly insuring retention notes. This comes against a backdrop of more interest from insurers in junior corporate risk through the SRT market.
