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February 2022 | Issue 242
News
Digital CLO refis show worth
as way of sticking by Libor
Digital CLO refis show worth
as way of sticking by Libor
Sayed Kadiri
Editor
When regulators outlined that Libor would not be used on primary market transactions in 2022, they probably did not contemplate CLO refinancings sticking to the benchmark (refis are deemed to be primary market transactions). But a digital refinancing of a HalseyPoint Asset Management US CLO last month proved there is a way of sticking with Libor.
On 12 January, tech company Kopentech oversaw the applicable margin reset (AMR) of HalseyPoint II in a deal that resulted in the margins of triple A down to single A-rated debt being refinanced. Libor was retained as the floating rate benchmark.
“AMR refis are secondary market transactions,” says Jill Scalisi, chief engagement officer at Kopentech. That is why, she argues, an AMR transaction does not have to switch over to a new benchmark.
“The cusips are maintained and the margin is simply lowered. Logically, in January, there are not many Sofr assets, so by preserving Libor you can maintain that equilibrium,” she adds.
New York-based Scalisi, who joined Kopentech in July, says there are eight US CLOs that are eligible for an AMR refi this year. AMR language has to be embedded into CLO documentation, but Scalisi says this can be done as part of a doc amendment in a regular reset or refinancing.
However, maintaining Libor is only possible for CLO transactions with AMR that priced before 2022.
“AMR refis are more cost effective than regular refis”
Jill Scalisi, Chief engagement officer | Kopentech
Presumably, CLO equity investors can also use a repricing to rework CLO debt stacks this year without having to switch over to Sofr.
Repricings also result in cusips being retained and coupons being replaced, although these are still standard capital market transactions as opposed to digital refis.
Scalisi says AMR refis are more cost-effective than regular refis because the CLOs do not have to be rated, have no legal fees and the refi is not arranged by an investment bank.
“A typical refi takes 30 days, and even longer with rating agency and pipeline backlogs, compared to 10 days via AMR,” she says.
HalseyPoint II’s triple A notes priced at 110 basis points over Libor, which was 5bp inside the cap and equated to 133.8bp all-in on the pricing date. The CLO ends reinvestment in July.
In the primary CLO market last month, the nearest comparable to this deal was Palmer Square Loan Funding 2022-1, a static deal that priced on 14 January.
The triple As in that CLO priced at three-month Sofr plus 105bp, for an all-in rate of 118.7bp. However, Sofr has since climbed sharply.
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Global credit funds & CLO's
February 2022 | Issue 242
Published in London & New York.
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