April 2021 | Issue 233
Issuers offer bespoke CLO terms to wealthy investors
Hugh Minch
An expanding group of well-capitalised investors is leading CLO issuers to tweak deal structures to offer tailored investments.
From low attachment-point, fast-redeeming tranches to structuring CLO liabilities as loans, issuers and dealers are being creative to catch investor attention amid record sales.
Jane Lawrence, associate portfolio manager at Sound Point Capital Management, says investors in a CLO issued in March asked for unique double and single A notes.
“The double As feature a fixed-rate bond that converts to a floating-rate bond after a number of years, while on the single A there was an un-floored rate that reverted to a floored rate some years later.”
The deal, Sound Point Euro V, issued its $21.5 million class B2 fixed-rate notes at 1.85%, switching to 150 basis points over Euribor from the reinvestment end date. The $15 million C2s pay 280bp over un-floored Euribor for two years and then 225bp over the base rate floored at zero.
“The double As feature a fixed-rate bond that converts to a floating-rate bond”
Jane Lawrence, Associate portfolio manager | Sound Point Capital Management
“The fixed was done to manage duration limits, while the un-floored tranche was so they could do the USD swap,” says New York-based Lawrence.
The move towards flexible CLO structures is a contrast to just a few months ago when deals catered to a risk-averse investor base amid pandemic-related uncertainty.
MidOcean Credit Partners also created an unusual CLO in March. MidOcean CLO VI contains mezz tranches split into senior and junior pieces, plus an overlapping blended tranche. Meanwhile, numerous CLOs have come to market with enlarged triple B tranches that have cash sweep facilities.
Bank of America and State Street have emerged as buyers of CLO loan tranches.
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Global credit funds & CLO's
April 2021
| Issue 233
Published in London & New York.
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