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November 2022 | Issue 250
News
eBay and IBM lead as US firms plug-in to CLO triple As
eBay and IBM lead as US firms plug-in to CLO triple As
Hugh Minch
Senior report
Major US corporations eBay and IBM have begun investing in senior CLO debt tranches, while Apple has also been looking to enter the market.
Sources have told Creditflux that IBM has been buying the triple and double A notes of static CLOs. The company is understood to have invested in the entirety of the senior-most tranches of KKR Static CLO II and Trinitas Static CLO II in October, through a mandate with PGIM.
eBay, on the other hand, is investing directly in the CLO primary market, and not via an asset manager, according to sources.
Meanwhile, Apple is watching the CLO market and has looked at deals arranged by Goldman Sachs, with which the iPhone manufacturer offers a high yield savings account.
Creditflux understands that Apple has not yet made any CLO investments.
Serhan Secmen, head of US CLO investments at Napier Park Global Capital, says he is surprised that large US tech firms have not invested their capital in CLOs until now.
“It’s a highly compelling trade,” says New York-based Secmen. “If I was working for a treasury that is trying to lock in a 5% yield, it would seem reasonable.”
“It’s a highly compelling trade”
Serhan Secmen, Head of US CLO investments | Napier Park Global Capital
In the past, corporations such as Ikea and Pfizer had large allocations to CLOs.
The investor base for triple A CLOs in particular has become shallower amid the turbulent markets of 2022.
US banks that were the primary buyers of triple A CLOs in recent years have paused new investments, while Japanese heavyweight Norinchukin Bank withdrew from the market in October, pulling out of several deals. These exits have forced syndicate desks to look to new markets to get deals over the line.
Tech firms, which have large amounts of cash on their balance sheets, are likely to be attracted by the floating-rate nature of CLOs.
While current yields on triple A-rated CLOs are around 5%, this is expected to rise to around 7% by the end of 2022. CLOs have had among the best total returns across fixed-income assets in 2022.
Discount margins were not published for the CLO notes bought by IBM.
For KKR Static II, the senior triple As pay a coupon of 222 basis points plus Sofr, the juniors pay 300bp, and the double As pay Sofr plus 350bp.
Spokespeople for Goldman Sachs and PGIM declined to comment. Spokespeople for Apple, eBay and IBM did not respond to requests for comment.
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Global credit funds & CLO's
November 2022 | Issue 250
Published in London & New York.
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