By David Bell, GlobalCapital, 06 Jul 2016

Nordic CLO manager lands debut deal

Scandinavian asset management firm Accunia priced its debut CLO on Tuesday, as other CLO managers switch from sponsor structures to originator risk retention models to account for the uncertainty over future UK passporting rights.

By David Bell
06 Jul 2016

Deutsche Bank had been marketing Accunia’s debut transaction since early June, and was able to boost the size of the transaction to €421m from an original €360.5m size.

At 143bp over three month Euribor, the senior €237.75m ‘A’ class of notes is wider than the tight 130bp level that more established managers have been able to price at in recent weeks.

Strong demand for triple-A CLO paper has driven spreads down to a low of 128bp when Babson Capital Management priced its €409.8m CLO in the first week of June. Cairn Capital and GoldenTree Asset Management, who brought the last two deals in the market in mid-June, both priced their triple-A pieces at 130bp.

The deal also showed some widening in the mezzanine and junior parts of the capital stack.

The €55.2m double-A piece was priced at 225bp over three month Euribor, and the €29.75m single-A tranche was priced at 320bp over. The €18.5m triple-B piece landed at 440bp while the €27.75m double-B piece was priced at 700bp over. No single-B tranche was offered.

Triple-As target 130bp

As a debut issuer, and with a smaller platform, sources away from the deal said that the Accunia deal would be considered an outlier in terms of pricing.

Reflecting the robustness of demand for European CLO senior paper, one CLO arranger said he expected triple-A spreads from established managers to snap straight back to the low levels seen before the shock referendum result.

CVC Credit Partners is expected to price its latest CLO on Thursday, with price talk in the 130bp area. Blackstone’s GSO, Alcentra Capital and 3i Debt Management are also lining up deals to hit the market before the summer break.

Notably, all of the issuers marketing new deals are avoiding the UK-based sponsor route that has been called into question by the British vote to leave the European Union.

If UK entities are barred from using passporting rules to access the European market, then CLOs using the sponsor route to fulfil risk retention rules would not be feasible.

The issue has provoked severe concerns among investors. One CLO investor told GlobalCapital on Wednesday that he was now avoiding all deals utilising a UK sponsor.

“I would not bet on a UK sponsor structure today — it’s impossible. The consequences would be too high,” he said.
Alcentra’s last deal, Jubilee 2015-XVI, was arranged by JP Morgan and used a sponsor structure. But the manager is marketing its latest deal with an originator structure.

CVC already uses the originator model, but for 3i, which is considering the originator approach, it would be the first time the manager has used this method. GSO is based in Dublin, and so does not face any potential passporting issues.

According to a CLO arranger, managers using the sponsor model could still bring deals using the same model, but would likely build in flexibility in the documentation to allow a switch to the originator model in future.

The arranger said that investors would still be confident of investing in such a deal, saying it would be a “small tweak”.

By  David Bell
06 Jul 2016

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