CLO demand may impact loan pricing

CLO issuers in Europe are making the most of positive market conditions, with some managers predicting that margins of 275bp and 300bp might come under pressure on term loan B and C tranches as a result. S&P has issued a report on European CDOs of leveraged loans, pointing to a positive performance from the six transactions that closed in the fourth quarter of last year.

Prudential M&G’s €300m Leopard 3 CLO appears to be at the front of the queue, with launch and pricing through Lehman Brothers expected by the end of February. The deal, which features 80% senior secured loans and 20% mezzanine loans, has been structured with €210m of Triple A notes, €12.5m of Double A notes in Class B, €27m of Single A Class C securities, and €12m of Triple B notes in Class D. Class E features €8.5m of Ba3/BB– notes.

Leopard will probably be followed by Carlyle European Leveraged Finance, a €350m deal for Carlyle Group through JP Morgan. According to investors, this transaction has 85% senior secured loans and 15% mezzanine. Class A has €252m of Triple As, Class B has €48m of Double As, €36m of Single As in Class B, and €14.4m of Triple B notes in Class D.

GSC CLO 2, from investment manager GSC Partners Europe, is also marketing equity. Investors said this was a €350m trade, through Lehman Brothers. It is going to be a slightly more conservative than Leopard, with a 15% mezzanine bucket and a Ba2 rating from Moody’s on the Double B tranche. Leopard features a 20% mezz bucket and a Ba3 rating.