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 The CLO, which was arranged by JP Morgan and Citigroup, combines two
portfolios of loans that New York-based Apollo had been warehousing,
the sources said.
The most senior portion of the fund, a $715 million AAA slice, pays
investors a coupon of 146bp over Libor, sources said.
More than $58 billion of CLOs, the biggest buyers of leveraged
loans, were issued during the first six months of the year, just
behind 2014's volume of $60.8 billion for the same period, according
to Thomson Reuters LPC data.
Spreads on the largest and most senior part of a CLO, the AAA slice,
have moved to the widest level since April after tightening in June
to the lowest point since November 2013, according to Morgan Stanley
data, amid heightened market volatility.
“Uncertainty surrounding Greece and China have weighed on risk
assets, including CLOs,” said Richard Hill, a structured credit
analyst at Morgan Stanley. “Demand has remained relatively strong
even as supply accelerated at the end of the quarter.”
A Citigroup spokesperson and a JP Morgan spokesperson both declined
to comment. A spokesperson for Apollo, which oversaw about $163
billion of assets as of March 31, did not return a telephone call
seeking comment.
EXPECTED TO SLOW
Banks' are forecasting that between $70 billion and $110 billion of
CLOs will be arranged in the U.S. in 2015.
A record $123.6 billion was issued in 2014, driven by managers
seeking to issue deals ahead of risk-retention rules, which will
require firms to hold 5 percent of their funds.
June volume of $14.6 billion was the third-highest month ever,
according to a July 10 JP Morgan report. Issuance is, however,
expected to slow in the second half of 2015 as managers grapple with
how to comply with the rules that go into effect in December 2016
and deal with widening spreads.
“The top concern is a tie between challenging arbitrage and lack of
collateral,” Rishad Ahluwalia, global head of CLO research at JP
Morgan, said in the report about a bank survey of market
participants. “Risk retention and credit deterioration” are the
second biggest concerns.
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Only about 10 of the 30 largest CLO managers, which are primarily
affiliated with an insurer or large asset manager, may be able to
comply with the rules, which were released in October, according to
a report from management consulting firm Oliver Wyman.
Average AAA CLO spreads on new-issue deals widened to 147bp July 3
from 143bp in June, according to Morgan Stanley data.
BlackRock priced a CLO in May with AAAs paying a rate of 139bp more
than the benchmark, the tightest level since about October 2013,
according to Wells Fargo & Co.
Last month Apollo had price talk on the AAA slice at 142-143bp over
Libor, sources told LPC.
BBB CLO spreads widened to 410bp at the start of July from 380bp in
the beginning of June, according to Morgan Stanley data. BB rated
CLO spreads widened to 650bp from 610bp during the same timeframe.
As spreads are widening, loan issuance is falling. New money U.S.
institutional loan issuance was $73.6 million in the first half of
the year, falling more than 36 percent from the same period in 2014,
according to LPC data.
“Collateral sourcing may present a challenge for continued robust
issuance during the second half of 2015,” Hill wrote in a July 8
report.
(Editing By Tessa Walsh and Jon Methven)
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