40 International Financing Review February 29 20204HEûWEIGHTEDûAVERAGEûlXEDûINTERESTûRATEû
was 6.18%, the average remaining term
41.49 months and seasoning 8.2 months.EMEA CLO
CIFC AND KKR FIND TIGHT PRICING AT
START OF WEEKTwo European leveraged loan new issue
spreads were squeezed tighter at the start of
last week, but both were printed before
markets widened on fears over the
coronavirus.
On Monday, CIFC achieved the tightest
Triple A print of 2020, for new issues at the
standard two-year non-call and 4.5-year
reinvestment periods, with its second
European leveraged loan CLO offering.
Priced through Barclays, the seniors from
CIFC EUROPEAN FUNDING CLO II came at 90bp over
three-month Euribor, shaving 2bp off the
previous week’s new issue spreads from
Voya, CELF and Intermediate Capital
Managers.
A well-established manager in the US,
#)&#ûSOLDûITSûlRSTû%UROPEANû#,/ûISSUEûLASTû
year after building out a team that includes
Dan Robinson as CIO for Europe. Robinson
was poached from Apollo in 2018.
One day after CIFC’s new issue, KKR priced
its AVOCA CLO XXI via lead manager BofA
Securities. The deal sold its senior notes one
basis point inside CIFC, to come at 89bp.
Levels further down the stack were
similar to CIFC’s. The Double As for CIFC
came at 160bp, compared with 150bp for
Avoca. CIFC’s Single As (Moody’s/Fitch),
Baa3/BBB– and Ba2/BB tranches were priced
at 200bp, 300bp and 550bp, compared with
210bp, 315bp and 550bp for the AA/AA (S&P/
Fitch), BBB/BBB– and BB–/BB– tranches from
KKR.
The spread on CIFC’s B3/B– was not
disclosed. The B–/B– for Avoca came at an
835bp discount margin.US ABS
CORONAVIRUS ADDS UNCERTAINTY
TO US STRUCTURED FINANCE4HEû53ûSTRUCTUREDûlNANCEûHASûBEENû
humming along since the start of 2020, but
the coronavirus breakout has added
uncertainty to the sector’s outlook for the
rest of the year, according to participants at
AûMAJORûINDUSTRYûCONFERENCEûINû,ASû6EGASû
last week.
Financial markets were rattled by the
spread of coronavirus outside of China last
week and while structured products tend to
lag secondary market moves seen in equitiesor high-yield bonds, speakers at the
Structured Finance Association’s SFVegas
2020 conference said securitisations were
not immune to pressures from the spread of
the virus.
“A potential pandemic is a clear example
of exogenous risk,” said Goldman Sach’s
chief economist, Jan Hatzius.
The virus breakout has become another
LURKINGûRISKûFORûTHEûSTRUCTUREDûlNANCEû
market that also faces possible regulatory
changes if a Democrat wins the White
House and ongoing challenges in the
industry’s transition away from the London
interbank offered rate.
Among securitisation sectors, market
participants have been focused on asset-
backed securities backed by airplane leases
in light of travel restrictions put in place to
contain the spread of the virus.
Three aircraft ABS deals, totalling
US$2.06bn, have been priced since the start
of the year to solid demand, but if the virus
situation were to worsen, market
participants expect the sector to face some
volatility.
“There’s more of a concern as it spreads,”
said MUFG international head of securitised
products, Tricia Hazelwood.
It is too early to tell whether spread levels
on forthcoming aircraft deals would widen
if the global infection rate continues to
climb and the drop in air travel would last
longer than what was seen during the SARS
outbreak in 2003.
“The uncertainty band has widened,” said
6ISHWANATHû4IRUPATTUR ûHEADûOFû53ûlXED
income research at Morgan Stanley.
Wells Fargo analysts cited 26 aircraft
securitisations with exposure to China and
Hong Kong.
“For now, we do not expect an immediate
CASHmOWûEFFECT ûASûTHEûLESSEESûSHOULDû
continue to pay on the leases. Aircraft
COMINGûOFFûLEASEûMAYûBEûDIFlCULTûTOûPLACE ûORû
face lower rates,” they wrote in a recent
report.FALLING YIELDS
The potential fallout from the virus and how
it will ultimately impact on structured
lNANCEûREMAINSûFARûFROMûCLEAR
But Tirupattur noted the securitisation
sector is “a bit insulated” from the violent
swings seen in stocks and commodities
being driven by investor anxiety about the
virus.
He and bankers who spoke on a panel on
OPPORTUNITIESûANDûRISKSûINûSTRUCTUREDûlNANCEû
market reckoned US consumers are in good
shape with the unemployment rate near
multi-decade lows.
And while the global economy is expected
TOûSLOWûINûTHEûlRSTûQUARTER ûCONSUMERû
spending and business activity shouldrebound in subsequent quarters if the
coronavirus is contained, bankers and
analysts said.
That would mean consumer and real
estate-linked structured bonds should
PERFORMûlNE
In fact, the current drop in US bond yields
COULDûSPURûRElNANCINGûINûREALûESTATEûANDû
bolster securitisation activity.
“I fully expect a pick-up in commercial
REALûESTATEûlNANCING vûSAIDû7ELLINGTONû
-ANAGEMENTûlXED
INCOMEûCREDITûANALYSTû
Carolyn Natal.
Benchmark US 10-year Treasury yields fell
to a record low of 1.412% on Thursday, and
US mortgage rates have also declined with
the precipitous drop in bond yields.
h7EûEXPECTûRESIDENTIALûHOUSINGûTOûBENElTû
from lower rates,” said Goldman’s senior
mortgage strategist Marty Young.FAT BRANDS’ ABS DEBUT TO PRICE THIS
WEEKUS restaurant franchise FAT BRANDS is
EXPECTEDûTOûPRICEûITSûlRSTûWHOLE
BUSINESSû
securitisation this week, with a large credit
fund set to acquire the entire high-yield
rated offering, totalling US$40m, sources
familiar with the deal said.
Cadence Group, the deal’s structuring
consultant, will record the deal with
traditional methods and on the ethereum
blockchain.
It expects to issue security tokens that will
serve as “digital representations” of
ownership of the ABS securities, according
to DBRS Morningstar.
The structure of the deal, backed by
franchise fees and ongoing royalties, has
been streamlined since it emerged in the
market in January.
FAT BRANDS ROYALTY I now features two
53MûlXED
RATEûCLASSESûOFûSENIORûDEBTûTHATû
are expected to be repaid in 2.5 years and 3.5
years, respectively.
DBRS Morningstar provisionally assigned
BB ratings to the A-2 and B-2 tranches.
Previously, the offering contained a
US$1m Class A-1 and US$1m Class B-1 with
maturities of 1.5 years, while the larger
Class A-2 and Class B-2 notes were each sized
at US$19m.
The A-2 note is expected to offer a 6.50%
coupon rate, while the B-2 class is set to
price with a 9.00% coupon rate, which are in
line with their guidance, the sources said.
Whole-business securitisations are a
growth sector in US ABS, with a record
US$9bn raised in 2019 and some two-
thirds of deals coming from fast-food and
casual dining franchises, according to IFR
data. In January, drive-in restaurant chain
Sonic sold a US$900m whole-business
securitisation.6 IFR Bonds 2322 p 25 - 43 .indd 40 28 / 02 / 2020 19 : 15 : 32