Carlyle Global €300 million CLO, Ares €300 million to price; market focus on QE program

By Cristal Cody

Tupelo, Miss., June 3 - A few European CLOs remain in the works for June as the market waits for final clarification regarding manager regulations, while the U.S. market is focused on the upcoming May job report and any impact on the Federal Reserve's asset purchase program, sources said.

The outlook for European issuance for the year cooled after the European Banking Association proposed in May that CLO managers retain the 5% risk-retention, rather than a third party sponsor.

Of the four European CLO deals sold this year, only one would qualify, according to market sources.

In a deal expected to price in early June, Carlyle Global Market Strategies Euro CLO 2013-1 BV plans to sell €180 million of class A floating-rate notes (/AAA/) talked at six-month Euribor plus 180 basis points, according to market sources.

The other tranches of the deal include €33 million of class B fixed-rate notes (/AA/) talked with a 2.9% coupon; €17 million of class C fixed-rate notes (/A/) talked with a 4% coupon; €13 million of class D floating-rate notes (/BBB/) talked at six-month Euribor plus 400 bps; €21 million of class E floating-rate notes (/BB/) talked at six-month Euribor plus 575 bps; and $36 million of subordinated notes.

The cash-flow CLO is backed by a revolving pool of broadly syndicated senior secured loans and bonds.

Barclays Bank plc will arrange the transaction.

The CLO manager will be CELF Advisors LLP, which currently manages €4.7 billion in 12 CLOs.

Ares Management LLC, which has not brought a CLO deal in Europe since 2007, also is expected to sell its €300 million Ares European CLO VI Ltd. in June.

Credit Suisse Group AG is the placement agent.

Moody's Investors Service said in a report released late Friday that "few European CLO tranches are likely to incur losses" with no principal losses in any European CLOs to date.

"The likelihood of senior tranches in European arbitrage cash flow CLOs incurring principal losses is remote," Moody's said. "European CLOs emerged from the 2009 downturn intact, thanks to the effectiveness of structural protections, such as over-collateralization diversion mechanisms."

U.S. market, Fed's QE

In the U.S. market, Carlyle Investment Management LLC is expected to bring $500 million of notes in a CLO deal over the week, while the pipeline going forward could be impacted if the Federal Reserve tapers its $85 billion-a-month asset purchase program, sources said.

"The next big thing is Friday's payroll numbers," one source said. "The market is keeping a close eye on them. That might promote the Fed to make a decision one way or the other in the next few months if they're going to stop their bond purchasing program or continue it."

The Labor Department is expected to report 165,000 additional jobs in the May non-farm payroll report with no change forecast for the 7.5% unemployment rate.

The central bank's quantitative easing program pressures long-term rates, which help make CLOs more attractive.

"It keeps interest rates so low that traditional products that used to provide you yield like Treasuries are not giving enough return right now," the source said. "So that pushes investors into products like CLOs, corporate bonds, corporate loans. It gives more demand for these products - that's why we've seen such a boom in credit products."

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