Carlyle sells European CLO; February CLO supply surpasses January total; AAA spreads flat

By Cristal Cody

Tupelo, Miss., Feb. 24 - The European collateralized loan obligation market saw primary action on Monday with a €375 million offering from the Carlyle Group LP, while issuance in the U.S. CLO market climbed in February, according to informed sources.

"February's MTD [month-to-date] issuance of $5.3 billion is a significant increase over the $2.5 billion issued in January," Wells Fargo Securities, LLC senior analyst Dave Preston and associate analyst Jason McNeilis said in a note on Monday.

Overall CLO volume for 2014 of $7.9 billion, though, is still less than the $15.9 billion issued in the January-February 2013 time period, the analysts said.

"Although new CLOs are Volcker-compliant, we believe banks may be hesitant to invest in these new deals until regulators clarify Volcker compliance for their legacy CLOs or these older CLOs are brought into compliance through amendments," according to the report. "New CLO issuance should increase substantially after the AAA investor base has more clarity regarding the Volcker Rule."

The Volcker Rule, which takes effect in 2015, prohibits banks from owning CLOs that hold bonds.

Year-to-date European CLO issuance stands at €788.5 million on the deals from Carlyle and Alcentra Ltd., which priced the €413.5 million Jubilee CLO 2014-XI BV transaction on Jan. 24.

The Carlyle European CLO brought the AAA-rated tranche of notes at Euribor plus 140 basis points.

The Jubilee CLO sold its class A tranche also at Euribor plus 140 bps.

New U.S. CLO AAA tranches remain stuck in the 150 bps range, according to market sources.

In the U.S. secondary market, AAA notes trade flat at Libor plus 155 bps, sources said.

BBB tranches are about 5 bps wider on the month at Libor plus 405 bps, according to the Wells Fargo note.

Carlyle upsizes

Carlyle Group priced €375 million of notes, upsized from about €300 million, in the private placement deal via Credit Suisse Securities (Europe) Ltd., according to informed sources.

Carlyle Global Market Strategies Euro CLO 2014-1, Ltd. sold €218.25 million of class A senior secured floating-rate notes (Aaa//AAA) at Euribor plus 140 bps; €40 million of class B senior secured floating-rate notes (Aa2//AA) at Euribor plus 200 bps; €19.35 million of class C senior secured deferrable floating-rate notes (A2//A+) at Euribor plus 265 bps; €17 million of class D senior secured deferrable floating-rate notes (Baa2//BBB+) at Euribor plus 355 bps; €31.6 million of class E senior secured deferrable floating-rate notes (Ba2//BB) at Euribor plus 500 bps; €10.9 million of class F senior secured deferrable floating-rate notes (B2//B-) at Euribor plus 550 bps and €37.9 million of subordinated notes.

CELF Advisors LLP, a member of the Carlyle Group, will manage the CLO, which is backed primarily by senior secured corporate obligations to obligors domiciled in Western Europe.

Proceeds from the offering will be used to purchase a €363.8 million portfolio of European leveraged loans and bonds.

Washington, D.C.-based Carlyle Group brought two European CLOs in 2013. The firm sold the €350 million Carlyle Global Market Strategies Euro CLO 2013-1 BV deal in June and the €335.9 million Carlyle Global Market Strategies Euro CLO 2013-2, Ltd. transaction in September.

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