The leveraged loan CLO space claimed another pricing benchmark, providing further liquidity for Europe’s expanding institutional loan market. Deutsche Bank took the honours with Intermediate Capital Managers’ Eurocredit CDO IV.
The market has priced 15 leveraged loan CDOs so far in 2004, with combined issuance of over €4bn. Liability spreads have nearly halved over that 10-month period. This provides even more demand for term loan B and term loan C tranches, where an increasing number of facilities are flexing inside the traditional 275bp and 325bp over Libor price points.
Back in January, Pimco’s €307.3m Clarenville CLO priced at 60 over three-month Euribor for a 7.8-year Triple A note, through Deutsche Bank. Senior Triple A spreads on Eurocredit CDO IV came in at 33bp over for a 7.7-year WAL, 1bp inside Harbourmaster CLO 4, which came through Bear Stearns in the first week of October.
Eurocredit CDO features a collateral mix of senior and mezzanine loans as well as high-yield bonds. The maximum of mezzanine loans and high yield bonds is 20%, with a 10% limit on high-yield bonds.
The deal was oversubscribed after a very broad syndication, according to Deutsche Bank, with the majority of the paper sold into Europe. The bonds were sold to a variety of insurance companies, pension funds and banks.
Investors are keen on the CDO asset class due to its stability, so there is no reason to suggest that the tightening trend in CLO spreads will recede. RBS is in the market with a new synthetic CDO referencing US$2bn of Triple A rated CDO and CLO exposures. The deal is called Menton CDO I and will offer US$200m of notes spread over four classes rated Triple A, with pricing during November.
Deutsche Bank is putting together a new €687.5m self-led CDO called Eirles II, while guidance has been revised on parts of the Avoca CLO 2 for Avoca Capital, again through Deutsche Bank.
CFOs, which collateralise private equity funds themselves, are also on the rise. These are the next logical step in the development of the asset class, allowing fund of fund managers to raise financing in the securitisation market and giving fixed-income investors access to a new asset class. Around eight fund of funds have closed in Europe this year, with the value of assets under management expected to hit US$20bn by next year.