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Marathon Sells First New-Issue CLO With Tranche Linked to SOFR

Marathon Sells First New-Issue CLO With Tranche Linked to SOFR

Marathon Asset Management on Wednesday sold the first new-issue U.S. collateralized loan obligation with a tranche priced based on the Secured Overnight Financing Rate rather than Libor, according to a person familiar with the matter.

A $24.75 million slice of a transaction known as Marathon 2021-17 priced at 210 basis points over the SOFR benchmark, said the person who is not authorized to speak publicly and asked not to be identified. The rest of the $429.6 million offering was linked to the three-month London interbank offered rate, which has been the norm for CLOs. The market is facing a year-end deadline to use alternatives to Libor for new leveraged loans, which are the building blocks of CLOs.

Read more in the Structured Weekly: SOFR CLOs May Still Be a Long Way Off

It is the first brand new CLO to contain a tranche linked to SOFR after Onex Credit Partners last month sold a type of refinancing of a 2015 deal, known as a reset, with one tranche priced off SOFR. Wednesday’s deal was arranged by Bank of America Corp. and the SOFR-linked tranche is rated Aa2 by Moody’s Investors Service. Also part of the offering is another Aa2 graded slice for $22 million, which was priced at 190 basis points over Libor.

The scandal-plagued Libor benchmark can’t be used after Dec. 31 for new leveraged loans. That’s expected to create confusion in the market next year as CLOs embrace new benchmarks for the loans they buy and the bonds they sell for funding. For that reason, CLO managers are selling deals now that they might otherwise offer next year: a slew of transactions are expected to price in November so they can close by Dec. 31.

©2021 Bloomberg L.P.