European CLOs Rush to Refinance as Market Makes Up for Lost Time

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.”

Potential Pipeline

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.

European CLOs Rush to Refinance as Market Makes Up for Lost Time

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.”

Data Breakdown

  • 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

CLEANSING NOTICES

ManagerTransactionRefi/Reset PricedFirst IssuedPrev. RefiPrev. Reset
PRICED
BlackstoneClarinda Park CLORESET20162019
BlueMountainBlueMountain Fuji EUR CLO IIPARTIAL REFI2017
CarlyleCarlyle Euro CLO 2017-2REFI2017
CVC CPCVC Cordatus Loan Funding IVRESET20162018
Five ArrowsContego CLO IVPARTIAL REFI20182018
HPSAqueduct European CLO 1-2017PARTIAL REFI2017
InvescoInvesco Euro CLO IPARTIAL REFI2018
Investcorp CMHarvest CLO XVIPARTIAL REFI20162018
GLGMan GLG Euro CLO IIIPARTIAL REFI2017
PartnersPenta 2018-5XRESET20162019
PGIMDryden 44 Euro CLO 2015RESET20162018
PineBridgeEuro-Galaxy 2016-5XRESET20162019
CLEANSING NOTICES
AlcentraJubilee CLO 2018-XXI2018
AlcentraJubilee CLO 2013-X20132017
AlcentraJubilee CLO 2014-XI20142017
AlcentraJubilee CLO 2014-XII201420162019
AlcentraJubilee CLO 2016-XVII20162018
AXA IMAdagio V20162018
AnchorageAnchorage Capital Europe CLO 22018
BrigadeArmada CLO I2017
BrigadeArmada CLO III2018
AresAres European CLO VI20132017
KKR CreditAvoca CLO X20132016
KKR CreditAvoca CLO XII20142017
KKR CreditAvoca CLO XIII20142017
BlackRockBlackRock European CLO II2016
BlackRockBlackRock European CLO VII2018
BlackstoneCrosthwaite Park2019
BlackstoneElm Park CLO20162018
BlackstoneDartry Park CLO20152017
CairnCairn CLO IV201420172019
CarlyleCGMSE CLO 2016-2RESET20162019
CarlyleCarlyle Euro CLO 2019-12019
CVC CPCVC Cordatus Loan Funding VII20162018
Five ArrowsContego CLO VI2018
GoldenTreeLaurelin 2016-120162018
HayfinHayfin Emerald CLO I2018
ICGSt Paul’s CLO VI20162018
Investcorp CMHarvest CLO VII20132017
Investcorp CMHarvest CLO XXI2019
Investcorp CMHarvest CLO XX2018
GLGMan GLG Euro CLO V2018
PGIMDryden 46 Euro CLO 201620162019
PGIMDryden 27-R Euro CLO 2017201320162017
PGIMDryden 52 Euro CLO 20172017
PineBridgeEuro-Galaxy III CLO201320192016
SculptorSculptor European CLO I20162019
SculptorOZMLE II2017

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