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CLO Risk-Retention Models May Require Some Hurdling

The risk retention rules are not taking effect until 2016, but many in the industry are already focused on the impact that risk retention will have on the CLO market, including the types of CLO structures that will be needed for compliance.


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Latest News

Acadia Obtains $1.42B in Loan Commitments

– Behavioral care facility specialist Acadia Healthcare Co. has secured up to $1.42 billion in committed financing with Bank of America Merrill Lynch and Jefferies for its planned $1.18 billion acquisition of CRC Health Group, an operator of mental health and substance abuse facilities.

Barclays, Jefferies to Head TASC-Engility Merger Financing

– Barclays and Jefferies will lead $625 million in debt financing efforts that are part of the planned $1.1 billion merger between defense intelligence contractors TASC and Engility Holdings announced this week.

Loans Have 16th Straight Week of Net Withdrawals

– Investors took out $428.3 million for the week ending Oct. 29, according to Lipper. That is less than any of the past five weeks, and the lowest amount of net outflows since the week of Sept. 24 when $381.6 million was withdrawn from mutual loan funds and ETFs.

Hovnanian Enterprises Adds $200M to HY Bond Pipeline

– Other issuers Media General, Evraz and Essar Steel are expected to price as much as $1.6 billion in high yield bonds Friday

  • Charter Communications Prices Upsized $3.5B HY Notes
  • Media General Driving By with $300M HY Bonds
  • SourceHOV Issues $1.035B in Loans
  • Southeast PowerGen Proposes $550.5M in Debt Facilities
  • Charter Comm Seeks $1.5B to Fund Purchase of Comcast Assets
  • Price Talk Revised on Inc Research’s $525M Loans Proposal
  • Commitments Due for Block’s $225M Loan
  • Toms Shoes Revises Talk on $360M Loan Offer
  • SourceHOV Marketing $1.035B in Loans
  • Moody's: End of QE3 Won't Impact HY
  • More

    Featured Articles

    Why Monroe Capital Took its Time with Second CLO

    – The middle market that the firm plays in is less liquid and less transparent than the broadly syndicated loan market, so picking up primary loans is key for a collateralized loan obligation. And what better way to do that than to have your own origination platform?

    Moody's: Rising Rates Will Reduce Excess Spread for CLOs

    – Rising interest rates could reduce an important form of credit enhancement for U.S. collateralized loan obligations, potential putting them at risk for downgrades in their credit ratings, according to Moody’s Investors Service.

    Little Relief for CLOs from Risk Retention

    – Unlike residential mortgages, commercial mortgages and even auto loans, there is no carveout for below-investment grade corporate loans that meet specific criteria.

    Key Questions Arise on Risk Retention Rule

    – Bankers and collateralized loan obligation managers are on edge to see the final rule’s impact on CLOs. A 2013 version of the regulation would require managers to retain 5% of the loan packages they securitize. Organizations like the Loan Syndications and Trading Association have argued the CLO market will be “materially harmed” by the retention rule.

    How BDCs Can Coexist With Bankers

    – Serving small-cap and middle-market firms, and providing financing that complements rather than displaces corporate bank structures is how business develop corporations can succeed in meeting the demand for borrowing that large banks don't fulfill, says Raj Vig, managing partner at TCP Capital Corp.

    'HY-Lite' Bonds Gaining Ground

    – Nearly half the high-yield bond issues that hit the market in September had something in common for investors: major exposure. It's all due to a trend toward fewer covenant protections in issued spec-grade notes, reports Moody's.

    BDCs Moving Leverage Off Balance Sheet

    – As competition to lend to smaller companies heats up, reducing returns, business development companies are turning to off-balance sheet investment vehicles to put more borrowed money to work without running afoul of regulatory limits.

    What Basel's Other Liquidity Ratio Means for Banks

    – A final "net stable funding ratio" requirement comes after years of efforts to revise the ratio amid industry complaints that it will increase funding costs. Individual banks and trade groups had lauded the committee for making progress in its most recent NSFR proposal released in January, but said several concerns remain.

    Healthcare M&A at Risk from Inversion Rules

    – The Treasury's new rules restricting the tax benefits of corporate inversions have already prompted the cancellation of one deal, and according to Moody’s Investors Service several other pending M&A agreements in the medical industry could come under renewed ratings scrutiny due to the Treasury’s actions.

    Right Structures Key for Middle Markets

    – Middle market credit deals are going to rely more and more on finding the right structure to be successful, and firms that prove nimble at putting together a variety of structures will find success with the widest swath of clients, according to Goldman Sachs veteran Thomas Goila.

    FINRA Pushes for More HY Trading Transparency

    – An increasing share of corporate bond trades are taking place on electronic venues, and the Financial Industry Regulatory Authority (Finra) wants them to start disclosing more information. The push for more disclosure comes as electronic trading platforms siphon off an increasing share of trading activity.

    Fitch Raves on Revolver Recoveries

    – With the exception of “highly cyclical” commodities businesses or an occasional instance of fraud, secured lenders of revolvers and asset-backed loans have largely experienced full recoveries in bankruptcy proceedings over the past nine years, as detailed in a new report by Fitch Ratings.

    Investors Playing Nice with Toys ‘R’ Us

    – According to Markit, three existing loans and a notes issue that are being refinanced took a major pricing leap after the company outlined plans in a Sept. 23 registration filing to issue new term loans of up to $1.025 billion in addition to a new $350 million revolver tranche.

    Euro CLOs Taking a Shine to Volcker

    – Several European CLOs have garnered attention this year as the first breed of self-professed Volcker-compliant issues from Europe, designed to attract U.S. bank investments or meet the regulatory requirements of a U.S.-based parent bank.

    Fed Flexes Muscle on Leverage Limits

    – Credit Suisse,which is the top bookrunner for loans backing LBOs this year, has reportedly received a warning from the Federal Reserve about exceeding guidelines on the amount of debt it will finance for corporate borrowers.

    Scientific Games Reshuffles Debt

    – Scientific Games is stretching its balance sheet to buy rival slot machine maker Bally Technologies for $5.1 billion, betting that the cost savings will help it compete in a market hit by weaker consumer spending and competition from online gaming.

    Healthcare Covenants In Poor Shape

    – Covenants of healthcare company junk bonds have been in declining health this year. Covenant quality for these companies is declining at a faster rate than the industry as a whole. Lower default rates are partly to blame.

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