June 12, 2012 / 6:32 PM / in 6 years

RLPC: CSAM sets price guidance on $518M CLO

NEW YORK, June 12 (Reuters) - Goldman Sachs has outlined price talk on a $518 million collateralized loan obligation (CLO) it is marketing for Credit Suisse Asset Management (CSAM) , sources told Thomson Reuters LPC. This is CSAM’s second CLO this year.

The CLO, which is called Madison Park Funding IX Ltd, includes a $320 million AAA tranche guided at a coupon of 140-145bp over Libor and a DM of 145-150 over Libor; a $55 million AA tranche guided at a coupon of 250bp over Libor and a DM of 300-310bp over Libor; a $36 million A tranche guided at a coupon of 325bp over Libor and a DM of 400-415bp over Libor; a $29 million BBB tranche guided at a coupon of 425bp over Libor and a DM of 600-625bp over Libor; a $22 million BB tranche guided at a coupon of 525bp over Libor and a DM of 825-850bp over Libor; and a $56 million equity tranche.

A DM, or discount-to-margin, is the margin on a CLO tranche after taking into account its issue price. The deal is expected to price around June 20 or June 21.

The CLO’s reinvestment period - the length of time it can actively trade in and out of credits - is four years. The non-call period ends in two years. The CLO’s maturity date is 11 years.

In March, CSAM priced a $413 million CLO in which the AAA tranche priced at 142bp 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, $15.99 billion in CLOs have priced.

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