CLO pipeline thins ahead of holiday; AXA plans $369.35 million CLO; market studies rule

By Cristal Cody

Tupelo, Miss., Dec. 16 - Primary activity is slowing ahead of the Christmas break, but some pricing action is expected over the week, according to market sources.

Apollo Credit Management LLC, a subsidiary of New York City-based Apollo Global Management, LLC, has a CLO transaction in the pipeline via Citigroup Global Markets Inc. that is likely to price during the week, a source said.

A few more deals are expected to put total CLO issuance for the year in the $80 billion area, one source said.

AXA Investment Managers Inc. is preparing to sell $369.35 million of notes due January 2026 via J.P. Morgan Securities LLC in its first U.S.-based CLO deal, according to market sources.

The Allegro CLO I Ltd./Allegro CLO I LLC deal includes $213.8 million of class A-1 senior secured floating-rate notes (Aaa/AAA/); $45.7 million of class A-2 senior secured floating-rate notes (/AA/); $28.5 million of class B senior secured deferrable floating-rate notes (/A/); $19.1 million of class C senior secured deferrable floating-rate notes (/BBB/); $17 million of class D secured deferrable floating-rate notes (/BB/) and $45.25 million of subordinated notes.

AXA Investment Managers, a part of Paris-based AXA Group, has offices in Greenwich, Conn., Paris, London and Singapore.

Meanwhile, CLO market participants continue to study the Volcker Rule issued a week ago for the ramifications to banks and trading desks.

The Loan Syndications and Trading Association will host a webcast on Wednesday for investors and CLO managers to discuss the new rules and the loan market.

The rules, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, prohibit banks from short-term proprietary trading and impose limits on banks' investments in hedge funds or private equity funds. The rules also appear to prohibit CLOs from owning bonds, market sources said.

The Federal Reserve has set compliance by banks by July 21, 2015, which gives CLO managers 18 months to sell the bonds from existing CLOs, according to a Wells Fargo Securities, LLC report on Monday from Dave Preston, senior analyst, and Jason McNeilis, associate analyst.

"It appears CLOs that do not own bonds are exempt from the ownership restrictions of the Volcker Rule," the analysts said. "The major question now is what constitutes 'ownership' of a 'covered fund.' There are additional questions on whether a bank can act as a market maker in the equity tranche of a CLO for which that bank acted as an underwriter."

CLO trading desks also are expected to see some effects of the Volcker Rule, according to the note.

"CLO trading desks may move to carry less inventory, which could decrease liquidity," the Wells Fargo analysts said. "Investors may find that trading desks are less willing to provide liquidity during market pullbacks, if the desks are less certain of near-term demand."

3i finalizes Jamestown CLO

Elsewhere on Monday, 3i Group plc said that it closed on its previously announced $515.9 million deal, the Jamestown CLO III Ltd. transaction.

The Jamestown CLO III updated and finalized terms for the fixed-rate tranches of the offering from a previously released pricing term sheet, according to the 3i Group news release.

In the transaction, the CLO priced $287.7 million of class A-1a senior secured floating-rate notes (Aaa/AAA/) at Libor plus 145 basis points; $20 million of 3.378% class A-1b senior secured fixed-rate notes (Aaa/AAA/); $43.9 million of class A-2a senior secured floating-rate notes (/AA/) at Libor plus 195 bps; $10 million of 4.206% class A-2b senior secured fixed-rate notes (/AA/); $45.1 million of class B senior secured deferrable floating-rate notes (/A/) at Libor plus 275 bps; $33 million of class C senior secured deferrable floating-rate notes (/BBB-/) at Libor plus 330 bps and $21.4 million of class D secured deferrable floating-rate notes (/BB-) at Libor plus 460 bps.

3i Group said it has taken a minority stake in the deal's $54.8 million equity tranche.

J.P. Morgan Securities LLC was the placement agent.

3i Debt Management U.S. LLC, a firm founded in 2011 and a subsidiary of London-based 3i Group, will manage the CLO.

3i Group said in the release that the Jamestown CLO will focus on investing in U.S. corporate debt and in senior secured loans backing private equity buyouts in the United States.

The firm has closed four CLO transactions totaling $1.9 billion in the last 14 months, Jeremy Ghose, chief executive officer and managing partner of 3i Debt Management, said in the statement.

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