European CLOs Rush to Refinance as Market Makes Up for Lost Time
(Bloomberg) -- Tumbling debt spreads are spurring a rush to refinance collateralized loan obligations as managers seize an opportunity to eke out better terms on older deals.
As many as 12 transactions worth 4.3 billion euros ($5.2 billion) have already priced this year in what may herald the start of months of intense activity.
Managers have issued at least 40 cleansing notices -- a piece of legal red tape to kickstart refinancing processes. Alcentra and PGIM Ltd are among those working on multiple deals.
The flurry comes as CLO debt spreads drop to close to 80 basis points from as high as about 200 points in April last year. The decline opens the door for managers to make up for time lost during the pandemic by re-tooling deals to extend their life or tweaking terms to make them more flexible.
“Triple-As moving to the low 80 basis point level puts the whole market on a refinanceable footing,” said Alexander Ohl, Head of Credit Solutions at Union Investment in Frankfurt. “The sheer amount of refis and resets will keep the market so busy.”
To be sure, the amount of activity so far this year is a fraction of the 26 billion euros of refis and resets that printed in the whole of 2017.
Even so, with managers keen to rework deals that have priced since 2017, including the post-Covid deals that exit short non-call periods from May, the surge in activity may have further to run.
Read More: Refis Dominate European CLOs as Spreads Tumble: January Wrap
The increased supply of refis and resets may create a resistance level for spreads to tighten further, especially on the top of the debt stack, Bank of America Global Research analysts wrote in a report published Feb. 15.
Aside from reducing funding costs, managers also want to update transaction tests and incorporate new provisions, such as terms to help managers secure better recoveries on stressed assets
“Managers don’t want to lose their equity investors and while refis are good for equity as they reduce funding costs, resets are even more important from a structural aspect,” said Ohl. “Having gone through the wave of loan downgrades in 2020, managers need to sort out the transaction tests, including WAL and WARF, to ensure the deals perform.”
- Most deals from the 2017 vintage, and all that priced from 2018 onward have yet to be reworked
- A combined total of EU48b priced in 2017-2018
- Another EU30b of deals that priced in 2019 will move out of non-call periods this year
- EU13b+ of post-Covid transactions, with higher funding costs, will exit their short 1Y non-call periods from May
- Reset triple-As tightened to a wide 83-90bps range in February from 95bps in January
- Refi triple-As are pricing in the mid-60bps area
- The 12 refinancings that already priced this year are from 2016-2018
|Manager||Transaction||Refi/Reset Priced||First Issued||Prev. Refi||Prev. Reset|
|Blackstone||Clarinda Park CLO||RESET||2016||2019|
|BlueMountain||BlueMountain Fuji EUR CLO II||PARTIAL REFI||2017|
|Carlyle||Carlyle Euro CLO 2017-2||REFI||2017|
|CVC CP||CVC Cordatus Loan Funding IV||RESET||2016||2018|
|Five Arrows||Contego CLO IV||PARTIAL REFI||2018||2018|
|HPS||Aqueduct European CLO 1-2017||PARTIAL REFI||2017|
|Invesco||Invesco Euro CLO I||PARTIAL REFI||2018|
|Investcorp CM||Harvest CLO XVI||PARTIAL REFI||2016||2018|
|GLG||Man GLG Euro CLO III||PARTIAL REFI||2017|
|PGIM||Dryden 44 Euro CLO 2015||RESET||2016||2018|
|Alcentra||Jubilee CLO 2018-XXI||2018|
|Alcentra||Jubilee CLO 2013-X||2013||2017|
|Alcentra||Jubilee CLO 2014-XI||2014||2017|
|Alcentra||Jubilee CLO 2014-XII||2014||2016||2019|
|Alcentra||Jubilee CLO 2016-XVII||2016||2018|
|AXA IM||Adagio V||2016||2018|
|Anchorage||Anchorage Capital Europe CLO 2||2018|
|Brigade||Armada CLO I||2017|
|Brigade||Armada CLO III||2018|
|Ares||Ares European CLO VI||2013||2017|
|KKR Credit||Avoca CLO X||2013||2016|
|KKR Credit||Avoca CLO XII||2014||2017|
|KKR Credit||Avoca CLO XIII||2014||2017|
|BlackRock||BlackRock European CLO II||2016|
|BlackRock||BlackRock European CLO VII||2018|
|Blackstone||Elm Park CLO||2016||2018|
|Blackstone||Dartry Park CLO||2015||2017|
|Cairn||Cairn CLO IV||2014||2017||2019|
|Carlyle||CGMSE CLO 2016-2||RESET||2016||2019|
|Carlyle||Carlyle Euro CLO 2019-1||2019|
|CVC CP||CVC Cordatus Loan Funding VII||2016||2018|
|Five Arrows||Contego CLO VI||2018|
|Hayfin||Hayfin Emerald CLO I||2018|
|ICG||St Paul’s CLO VI||2016||2018|
|Investcorp CM||Harvest CLO VII||2013||2017|
|Investcorp CM||Harvest CLO XXI||2019|
|Investcorp CM||Harvest CLO XX||2018|
|GLG||Man GLG Euro CLO V||2018|
|PGIM||Dryden 46 Euro CLO 2016||2016||2019|
|PGIM||Dryden 27-R Euro CLO 2017||2013||2016||2017|
|PGIM||Dryden 52 Euro CLO 2017||2017|
|PineBridge||Euro-Galaxy III CLO||2013||2019||2016|
|Sculptor||Sculptor European CLO I||2016||2019|
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