Goldman Sachs Asset Management Prices Its First CLO in Over a Decade
Goldman Sachs Asset Management Prices Its First CLO in Over a Decade
(Bloomberg) -- Goldman Sachs Asset Management priced its first collateralized loan obligation since 2007.
The $354.9 million deal, which is actively managed and underwritten by Wells Fargo Securities, is allowed to include up to 70% covenant-lite leveraged loans, according to a presale report from S&P Global Ratings. These types of corporate loans have fewer lender protections. S&P’s analysts also said the transaction will likely have a lower average recovery rate compared with recent CLO transactions, “which shows a weaker underlying portfolio from a credit perspective,” they wrote.
In an unusual structural feature, there was technically no pricing spread for a AAA tranche, as the senior-most tranche of the CLO was a “blend” between a AAA and a AA, with a combined spread of 149 basis points over the three-month London interbank offered rate, according to a person familiar with the matter.
That is on the wider side of where AAA CLO tranches have been pricing lately, with top-tier managers landing at about 130 basis points over benchmarks. Investors often expect a bit of a spread concession for new managers.
GSAM’s CLO platform is called Battery Park, and the asset manager previously only sold a single $400 million transaction in July 2007, prior to the financial crisis. It was redeemed in 2016. As of the end of last year, GSAM had approximately $6.5 billion of CLO tranches under management, according to S&P.
Battery Park’s portfolio managers include Peter Campo, who joined GSAM from Eaton Vance last year, as well as Ken Yang and David Kim.
Year-to-date CLO sales have reached $63 billion, running slightly behind the $69 billion that priced over the same period in 2018. Supply has remained relatively strong despite a challenging arbitrage, which is the gap between the money brought in from the loans and the cost of borrowing for a CLO manager needed to make the sales work. Another obstacle is the Federal Reserve’s dovish monetary policy signal and the high probability it may cut rates later this year, which doesn’t help the attractiveness of a floating-rate product such as CLOs.
CLO managers have created structural innovations, bought some of the CLO equity themselves, and shortened maturities this year in order to make it easier to get deals done.
To contact the reporter on this story: Adam Tempkin in New York at atempkin2@bloomberg.net
To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Boris Korby
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