Oak Hill plans $511.3 million CLO; Ares euro deal 'in development;' euro CLO AA tranches firm

By Cristal Cody

Tupelo, Miss., June 25 - Issuance in the collateralized loan obligation market continues to cool from the first quarter but is expected to stay on track to surpass 2012 issuance, while CLO managers continue to study the European deal market, informed sources said on Tuesday.

"It's feeling a little softer this week relative to where we saw it two, three weeks ago," one source said. "The first quarter was such a strong quarter, we never thought we would stay on that pace. It has slowed as little bit in the second quarter, but we'll still end the first six months at $40 billion, relative to the $55 billion [priced] last year."

Coming up, Oak Hill Advisors, LP expects to bring a $511.3 million CLO offering of notes due July 15, 2025, according to a market source.

The remainder of the year is expected to be in line with issuance seen in the second quarter, sources report.

KKR Financial Holdings LLC said on Tuesday that it closed on the $519.4 million CLO of notes due July 15, 2025 sold by KKR Financial CLO 2013-1, Ltd./KKR Financial CLO 2013-1, LLC.

The deal included a $311.5 million tranche of class A-1 senior secured floating-rate notes (Aaa//) priced at Libor plus 115 bps and six other tranches of floating-rate, fixed-rate and subordinated notes.

Citigroup Global Markets Inc. was the lead placement agent. KKR Capital Markets LLC and Natixis Securities Americas LLC were placement agents.

KKR Financial Advisors II, LLC will manage the cash-flow CLO.

Proceeds will be used to finance a portfolio of primarily senior secured leveraged loans.

The CLO has a four-year reinvestment period and a two-year non-call period.

KKR said it will hold all of the $61 million of subordinated notes.

"This transaction exemplifies our patient perspective on capital deployment," William C. Sonneborn, chief executive officer of KKR Financial Holdings and KKR Asset Management LLC, said in the statement.

"By waiting to issue a CLO until the onset of recent credit market volatility, we've been able to capitalize on more attractive asset levels as we ramp the portfolio, a process which is 83% complete. It also demonstrates our capabilities in creative structuring. We believe this is the first U.S. CLO issuance designed to address the latest iteration of the European Union's risk retention rules."

Ares in development

GoldenTree Asset Management LP sold a €300.3 million CLO and Carlyle Group LP priced a €350 million CLO earlier in June, while other deals in Europe remain in the works as managers work to comply with new risk retention rules, according to market sources.

GoldenTree Asset Management's deal did not comply with the proposed regulations for CLO managers but priced under Article 122a with all U.S. investors, according to an informed source.

The European Banking Association has proposed that CLO managers and not third party sponsors satisfy the risk retention requirement. The new rule is expected to take effect on Jan. 1.

Ares Management LLC's €300 million Ares European CLO VI Ltd. deal remains on the calendar, according to an informed source on Tuesday.

"It's still in development," the source said.

Marketing on the deal was launched earlier in May and pricing is expected late in June.

Credit Suisse Group AG is the placement agent.

Los Angeles-based Ares Management last sold a CLO in Europe in 2007.

In the secondary market, European CLO tranches have widened across the capital structure, except in AA-rated tranches, since the week of June 10, according to a market source.

Euro CLO AA-rated tranches are in about 10 basis points at Libor plus 220 bps, the source said.

On average, AAA-rated Euro CLO tranches eased 5 bps to Libor plus 130 basis points; A-rated notes widened 50 bps to Libor plus 400 bps; BBB-rated notes moved out 50 bps to Libor plus 650 bps and BB-rated tranches widened 50 bps to Libor plus 850 bps.

Oak Hill Advisors preps for $511.3 million CLO

Oak Hill Advisors' OHA Loan Funding 2013-1, Ltd. will sell eight tranches, including $307.5 million of class A-1 senior secured floating-rate notes (Aaa//); $40 million of class B-1 senior secured floating-rate notes; $30 million of class B-2 senior secured fixed-rate notes; $31.5 million of class C mezzanine secured deferrable floating-rate notes; $26 million of class D mezzanine secured deferrable floating-rate notes; $24.5 million of class E junior secured deferrable floating-rate notes; $14 million of class F junior secured deferrable floating-rate notes; and $37.8 million of subordinated notes.

J.P. Morgan Securities, LLC is the underwriter.

The deal is expected to close on July 15.

The New York-based investment firm previously was in the market with a CLO offering in the spring. OHA Credit Partners VIII, Ltd./OHA Credit Partners VIII, Inc. sold $415 million of notes due April 2025 that closed on May 15.

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