Deals in the market will have to be sold quickly, if they are to close before the implementation of risk retention rules on December 24. For a deal to be exempt from the rule, a manager must price and close before that date. The race to the finish will probably also spur more CLO refinancing activity for the same reason.
According to market sources, big name managers including Octagon Credit Investors and CIFC are looking to get deals done before the year is out.
Oak Hill Advisors hit the primary market first this week, pricing a $410.5m offering that was structured by GreensLedge Capital Markets. The deal is set to close on December 14. The triple-A notes were priced at 145bp over Libor. (For full pricing details, please see GlobalCapital’s US priced deal’s database.)
At press time, LCM Asset Management, Ares Management, Trimaran Advisors, Invesco, HPS Investment Partners and AXA Investment had all priced new deals.
A CLO lawyer said that because of the time it takes to close a transaction, managers are clamouring to price deals as soon as possible in order to close before December.
The window to avoid compliance is closing, but managers will have some room to run in the next two weeks if they get all their ducks in a row.
“It’s a bit of a myth that deals take a huge amount of time to close,” said a CLO buy-side analyst. “You don’t have to ramp up the entire deal by closing and if you can sort all the documents you could feasibly close a deal pretty quickly.”
However, he said that managers should still look to move quickly as the clock is ticking. “Christmas is a far bigger obstacle.” he continued “You can’t get a hold of investors and it’s impossible to sell a deal.”
Secondary market CLO trading volumes at the beginning of the week were “muted”, according to Scott Buchta, head of fixed income strategy at Brean Capital.
He added that real money demand remained strong in the middle of the credit curve — represented by single-A and triple-B bonds. This, he said, is being observed across fixed income markets as investors stretch for yield.
Buchta noted that fixed income investors should take advantage of the lack of supply and the flattening yield curve to sell their least favourite assets, given the high levels of demand in the market going into December.