NEW YORK, June 7 (Reuters) - Citigroup has priced a $406.85 million collateralized loan obligation (CLO) for Babson Capital Management, sources told Thomson Reuters LPC. This is Babson’s second CLO this year.
The CLO, which is called Babson CLO Ltd 2012-II, includes a $255 million Aaa/AAA tranche priced at par to yield 140bp over Libor; a $42 million AA tranche priced at a coupon of 250bp over Libor and a DM of 260bp over Libor; a $32 million A tranche priced at a coupon of 300bp over Libor and a DM of 375bp over Libor; a $22 million BBB tranche priced at a coupon of 425bp over Libor and a DM of 600bp over Libor; an $18 million BB tranche priced at a coupon of 525bp over Libor and a DM of 785bp over Libor; and a $37.85 million equity tranche.
A DM, or discount-to-margin, is the margin on a CLO tranche after taking into account its issue price.
The Babson CLO’s reinvestment period - the length of time the CLO can actively trade in and out of loans - ends on May 15, 2016. The final maturity is on May 15, 2023.
In March, Babson raised a $360.8 million CLO, in which the AAA piece priced at 143bp over Libor.
CLOs - which package leveraged loans into different slices of risk and sell them to investors as bonds with varying yields - are still a substantial buyer base for loans post the credit crisis. Sources estimate, however, that CLOs now make up around 40-50 percent of the demand for loans, down from 70-75 percent at the height of the market.
CLOs make money based on the difference between the liabilities spreads that they pay to their investors and the spreads they earn on the underlying loan assets. Since the resurgence of the CLO market in 2011, liabilities spreads on all parts of CLOs’ capital stacks have been trending lower, although they are still wide compared to liabilities spreads on the vintage CLOs from the bull market of 2006.
In 2011, $13.24 billion in CLOs were printed in the U.S., according to Thomson Reuters LPC data. So far this year, $15.48 billion in CLOs have priced.