Pimco Prices First Collateralized Loan Obligation Since 2006

(Bloomberg) -- Pacific Investment Management Co. priced its first collateralized loan obligation in more than a decade Wednesday, lured back to the market as the economic fallout from the coronavirus pandemic spurs tighter lending standards and improved margins.

The $404 million transaction, called Balboa Bay Loan Funding 2020-1, was structured and sold by Morgan Stanley, according to a person familiar with the deal. A $248 million slice rated AAA by S&P Global Ratings priced at 135 basis points over the three-month London interbank offered rate.

Pimco had stayed away from the business of packaging and selling CLOs since the financial crisis because of weak safeguards, the firm told Bloomberg in a June interview. However, with the pandemic sparking a wave of defaults, lenders would be able to charge higher borrowing costs, toughen underwriting standards and be pickier about what they buy, managing director Josh Anderson said at the time.

Staffing Up

The bond giant said in June that it had been staffing up for years waiting for an opportunity to re-enter the business.

CLOs have recovered considerably since the depths of March. New sales shut down for nearly a month as the pandemic rocked global markets. Transactions started picking up steam in mid April, buoyed by improving economics for the deals in which portfolio managers package and sell leveraged loans into chunks of varying risk and return.

U.S. CLO volume reached $13.8 billion in October, a 20% increase over September and the most since $15.7 billion was issued in April 2019, according to data compiled by Bloomberg. Overall, 2020 sales have surpassed $70 billion, still down a third compared to the same span last year.

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