Credit manager CIFC LLC was busy on both sides of the Atlantic as the manager brought its fourth new issue of the year in the U.S. and is moving closer to pricing the first CLO out of its newly formed platform in Europe.
A number of other U.S. managers have made inroads into the European CLO market.
Year-to-date totals:
• U.S. — $57.66 billion from 116 deals, versus $58.47 billion from 104 deals in the same period last year.
• Europe — €13.08 billion from 31 deals, versus €11.80 billion from 28 deals in the same period last year.
• Global — $72.42 billion from 147 deals, versus $72.85 billion from 132 deals in the same period last year.
U.S.
Against a backdrop of continued trade headlines and growing speculation that the Federal Reserve may reverse its tightening cycle by lowering rates, financing costs continued to fall for CLO managers from levels on deals issued earlier in the year.
CIFC pushed ahead with its latest new issue, making it the first manager to bring its fourth new issue of this year.
In the $511 million CIFC Funding 2019-IV, the AAAs priced at 130 bps, AAs at 180 bps, single-As at 240 bps, BBBs at 350 bps, and BBs at 700 bps
Liability costs were inside the levels from CIFC’s third new issue in mid-April, which priced at 137 bps and 170 bps on the senior and junior AAAs, 185 bps on the AAs, and 265 bps, 370 bps, and 725 bps on the single-As through BBs.
A pair of managers brought their first new issues of the year, including Boston money manager Fidelity Management, through its Ballyrock Investment Advisors subsidiary, and hedge fund Marathon Asset Management.
CLO equity investor Fair Oaks Capital took the opportunity to refinance two CLOs it holds positions in, including the Elevation CLO 2015-4 from ArrowMark Colorado Holdings and the Elm CLO 2014-1 from Mariner Investment Group, reducing the financing costs on the CLOs by 66 bps and 47 bps respectively.
Natixis brought Golub Capital’s second middle market CLO of the year with the $806 million Golub Capital Partners CLO 44(M), the largest middle market new-issue CLO so far this year. Pricing on each of the two senior AAAs (in note and loan form) was 167 bps, with the junior AAAs at 190 bps and a coupon of 3.84%. The AAs priced at 240 bps and single-As at 345 bps, while the manager retained the BBB tranche.
Golub’s previous middle market CLO in April saw pricing on the AAAs at 170 bps and 200 bps, AAs at 260 bps, single-As at 370 bps and a coupon of 6.099% (or 370 bps over interest rate swaps), and BBBs at 450 bps.

Trade risks and potential rate cuts?
While liability spreads remained stable in the primary market, selling activity in the secondary market hit a record for the post-crisis era as $2.1 billion in CLOs transacted, according to analysts at Bank of America.
CLO spreads were wider by 5–25 bps across investment grade tranches to 40–50 bps week-over-week on BB and single-B rated tranches.
Bank of America analysts, led by Chris Flanagan, attribute the sales to profit taking following strong performance in May, uncertainty from the different trade tariff headlines, and investor rotation into fixed-rate products such as high yield, especially as floating-rate assets find less appeal (a potential cut in interest rates is being priced in by the Fed Fund Futures and Eurodollar markets).
The BofA analysts also recommend that investors consider single-A or BBB tranches since a smaller portion of the total return at that part of the capital stack is dependent on the LIBOR addition, relative to the AAA tranche.
Still, even as some rate analysts across the banks are projecting up to three interest rate cuts this year by the Federal Reserve, banks such as Goldman Sachs have not come around to that view.
Even after the disappointing non-farm payrolls figure of 75,000 on Friday, Goldman Sachs’ Jan Hatzius published his view that the Federal Funds Rate would be unchanged for the remainder of the year.
“The [FOMC] faces a tricky balancing act at its upcoming June 18–19 meeting. On one hand, Chair Powell and his colleagues need to keep signaling that they would respond to large adverse shocks by easing policy, on the other hand, they will not want to feed the expectation that cuts are imminent, especially as the meeting comes right before the G20 with its potential Trump-Xi meeting and the subsequent U.S. decision whether to go through with the across-the-board China tariff. ” Hatzius wrote.
Europe
As CLO market participants head off for their annual excursion in Barcelona for the global IMN ABS conference that starts tomorrow, the market is being treated to a flurry of debut deals, with two pricing last week, and another two launching this morning. This takes the number of debut mangers to have priced a deal this year to three, and the total manager count for the 2.0 era to 50, according to LCD.
This will soon grow further. This morning Deutsche Bank launched the debut €356.05 million CIFC European Funding CLO I for CIFC CLO Management, while Barclays launched the debut €406.335 million Grand Harbour CLO 2019–1 for MeDirect Bank.
CIFC is already well known to the US market, having issued three U.S. CLOs already this year, and 32 since late 2011. Moreover, the firm earlier this year launched its first European UCITS fund to invest in liquid CLO notes as part of the U.S. credit manager’s plans to build out its platform in Europe. It also hired Dan Robison last year as chief investment officer, who has many years working in the credit markets.
MeDirect is less well-known in CLO land, having not issued a CLO in either Europe or the U.S. That said, last year Michael Curtis joined as chief investment officer. Curtis joined from ICG where he was co-head of the European Loans business, and managed numerous CLOs.
All eyes will be on these names to see whether there is much, to any, evidence of tiering for new managers emerging through the stack. The market does already have two price points for a debutante to take into account, as Napier Park on Friday priced its debut €406.2 million Henley CLO I via Citi, and Fair Oaks Capital on Thursday priced its first European CLO, the €332.6 million Fair Oaks Loan Funding I, via Deutsche Bank.
Napier Park printed the AAA tranche at 114 bps, down to an 895 bps DM for the single-Bs, and a WACC of 193. That is a little wider than some of the recent syndicated AAA prints from some of the market’s largest issuers, such as 111 bps for HPS and 112 bps for CSAM and ICG (see more below), but tighter on the single-Bs than CSAM (900 bps DM), and ICG (930 bps DM), and not far off HPS (885 bps DM).
As regards its 193 bps WACC, that matches ICG and CSAM and is only a little wider than HPS’ 190 bps. Others have had a lower WACC in recent weeks—Redding Ridge at 181 bps (it had no single-B tranche) and Invesco at 190 bps—offering further evidence that the cost of CLO liabilities is falling, especially if a debut manager is pricing so close to more established names.
Fair Oaks, meanwhile, opted for a short-dated deal with a one year non-call period and a two-year reinvestment period, which keeps the cost of funding on the deal lower than a 4.5-year reinvestment period CLO that is being marketed on the other debut issues.
The Fair Oaks deal includes two pari-passu AAA tranches, with the larger pricing at 96 bps and the smaller at 98 bps, with a 2% Euribor cap. The deal is also ESG-compliant, making it the third manager in Europe to do so, following Permira Debt Managers and Bardin Hill.
“We are already a signatory of the UN Principles for Responsible Investment and we apply those across the firm, so it made sense to include ESG criteria into the European CLO,” said Tyler Wallace, portfolio manager at Fair Oaks. “It seems that investors in our CLO appeared to welcome the ESG criteria—especially German, Nordic. and French investors. ESG will probably become standard in 3–5 years as these factors are ultimately driven by the end-investors.”
Permira is another issuer of ESG-compliant CLOs, having done the first, and is understood to be working on its next new issue for late this month or early next month.
Although the CLO is a debut for Fair Oaks, the manager already has an existing corporate credit platform that invests in European senior secured loans, while also investing in equity and mezzanine of U.S. and European CLOs.
The syndicate
Elsewhere, another new-issue CLO from a large manager—this time ICG—printed last week, with the AAA tranche sold in the syndicated market, thereby achieving tighter pricing than where the last anchored AAA priced.
ICG priced the €411.2 million St Paul’s CLO XI via Bank of America Merrill Lynch with the syndicated AAAs coming at 112 bps, and the total WACC at 193.25 bps. ICG is now the third manager—following CSAM and HPS—in recent weeks to take advantage of tighter spreads available in the syndicated market as the Japanese anchor investor had upped its demand on the spread to 113 bps last week, as seen on the Redding Ridge CLO. All three managers had previously issued the AAAs with Norinchukin.
While arrangers note that anything less than a five-basis-point savings does not really move the needle in terms of achieving a better return for equity investors, the syndicated AAA market currently offers better value for some issuers—and certainly to those that have not gone down the syndicated route in some time—than anchor investors, reversing the trend in the last few years when it was the other way around. Indeed, some arrangers admit that the arbitrage has improved in the last six weeks amid slightly more demand in Europe for liabilities.
“A five basis point differential on the AAAs equates to about 0.25% of equity return, so this is not game changing. But there is some pent-up demand for large managers in Europe from AAA investors. The AAA relative value is also more attractive, as other asset classes have tightened and AAAs have been stubbornly still. And we are seeing a little more interest from the U.S. where spreads have tightened even further,” says one senior CLO arranger, adding that the spread tightening is not only seen on AAAs but across the stack from the single-As down though the single-Bs.
LCD data shows the WACC on CLOs has come down to the low 190s on the last six prints, from a 200 level in March and April. Participants stress, though, that the market is taking baby steps in improving the arbitrage. Some investors remain skeptical about an improvement of arbitrage, especially as loan asset yields are tightening again. Indeed, the average yield-to-maturity on TLBs has tightened to 4.09% in May, from 4.15% in April and 4.21% in March, while single-B TLB yields fell to 4.12% in May, from 4.23% in April and 4.31% in March.
“I’m seeing an OK but by no means stellar credit tighten pricing to 350 bps. Take off your 200 bps arb then you need the WACC to be 150 bps but its 30–40 bps shy of that, which on a 10x-levered structure is robbing equity of 3% of return. Without CLO managers reaching down into the more risky names or maxing out on their bond buckets, plus giving up on fees, I don’t see how you can keep printing,” says one market player
Source：LCD