Spreads of leveraged loan CDOs have been settling slightly wider than the tights achieved in May, with Harbourmaster CLO 5 from Ireland’s Harbourmaster Capital, through Bear Stearns, becoming the second recent CLO to price back from Alcentra’s Jubilee V.
With Triple A ratings from Fitch and S&P for the senior Class A1L notes only and Fitch ratings the rest of the way down the structure, Harbourmaster had been expected by investors to pay a slight liquidity premium, as many accounts need a Moody’s or S&P rating. The 6.3-year A1L notes, sized at €490m, cleared at three-month Euribor plus 26bp, in line with price guidance. Jubilee V through JP Morgan had an average Triple A pricing of just below 24bp, with some notes going at plus 22bp.
The weighted average cost of debt was in the plus 43bp area for a deal that is slightly more leveraged at 14 times, compared with the typical European CLO that has leverage of around 10 times. The collateral in Harbourmaster 5, however, has no mezzanine bucket.
The deal was widely syndicated, with senior tranches oversubscribed and more interest concentrated lower in the structure. Triple B, Double B and equity notes were more than two times covered.
With its previous issue, Harbourmaster CLO 4 in October last year, also through Bear Stearns, the manager employed all three rating agencies on the senior notes in order to boost distribution, but this time it used just two. That was because of the cost of obtaining three ratings, while the manager was more comfortable with the S&P and Fitch criteria and felt two ratings would still achieve good distribution.
Suggestions that an element of tiering could be introduced into European CLOs followed rumours that price guidance on Avoca CLO 3 from Avoca Capital, which is expected to price through Deutsche Bank within the next week or so, will be as tight as the Jubilee print.
No official guidance has been released but one investor said she did not expect the Avoca pricing to be representative of the market, because it was believed to have been placed with just a handful of investors in Germany.