IFR International - 20.10.2018

LOANS LEVERAGED LOANS

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includes six months of soft call protection.
Insurance broker ASSUREDPARTNERS has
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loan.
The covenant-lite loan, which matures in
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six months.
The loan will be used to pay down
borrowings under an existing revolving
credit facility, fund acquisitions expected to
be completed before the transaction closes,
and provide liquidity for future acquisitions.
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Tank trailer maker ENTRANS INTERNATIONAL
launched a US$255m term loan that will
BACKûAûRElNANCINGûEFFORTûCredit Suisse leads.
Guidance on the seven-year term loan
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loan will have six months of soft call
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Libor.

FIRST EAGLE SEEKS US$1.81bn

Asset manager FIRST EAGLE INVESTMENT
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general corporate purposes.
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revolving credit facility maturing in
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ANDûAûDISCOUNTûOFû
The deal includes six months of soft call
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Morgan Stanley leads.
CABOT MICROELECTRONICS has scheduled a
lender meeting for Monday to discuss a
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months.
JP Morgan, Bank of America Merrill Lynch and
Goldman Sachs AREûARRANGINGûTHEûlNANCING
3EMICONDUCTORûCHEMICALSûSPECIALISTû#ABOTû
ANNOUNCEDûTHEûAPPROXIMATELYû53BNû
acquisition in August. The combined
company is expected to have annual
REVENUESûOFûABOUTû53BNûANDû%BITDAûOFû
APPROXIMATELYû53M

Methanol producer NATGASOLINE has

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for six months.

JP Morgan is leading the debt that will be

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Natgasoline as well as existing shareholder

and contingency loans.

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""nûFACILITYûRATINGS

Hotel and casino operator MOTORCITY is

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MATURESûINû

The company wants to cut interest

payments to 225bp over Libor. It is being

GUIDEDûATûAûDISCOUNTûOFû

The deal, arranged by BAMLûWILLûHAVEûû

soft call protection for six months.

Loan market asks regulators

to allow CLOs to hold bonds

„ US LSTA says move would boost returns to the most junior investors

The US leveraged loan market has asked

regulators to exempt CLO funds from a provision

in the Volcker Rule, to allow them to buy bonds

to boost their income.

The Loan Syndications and Trading

Association sent a letter last week to regulators

including the Federal Reserve and the Office

of the Comptroller of the Currency, asking that

CLOs be exempt from a covered fund provision

in the Volcker Rule, which stopped banks from

investing in CLOs that own bonds.

Volcker was aimed at eliminating proprietary

trading and is part of the wider Dodd-Frank Act.

It forced CLO managers to avoid purchasing

bonds so that banks could continue to buy CLO

debt.

Rolling back the rule would allow CLOs to

include bond buckets. This could boost returns

to the most junior investors, the equity holders,

who have seen their income hit by record loan

refinancings and increasing tranche spreads.

Equity holders are paid last with whatever

interest is left after all other fund holders

are paid. As less interest is paid to the fund

and senior investors take a greater share,

distributions fall. Stronger returns would help

boost investment in the riskiest tranche of CLO

funds and support continued issuance.

“If agencies either treat CLOs with bond

baskets as loan securitisations or recognise

that the right to remove the manager is not

an ownership interest, it would allow CLO

managers to hold a limited number of bonds

in their portfolios, which would give them some

additional flexibility in appropriate markets,” said

Elliot Ganz, general counsel at LSTA.

The LSTA submitted its letter in response to

regulators’ request for comment in May.

A reprieve from the Volcker Rule would be

another win for the US CLO market after the US

Court of Appeals for the District of Columbia

Circuit earlier this year ruled that the funds were

exempt from risk-retention regulations that

require managers to hold some of their deals.

CLOs are the largest buyers of US leveraged

loans.

US$104.1bn of US CLOs have been arranged

this year, which ranks 2018 as the third-largest

year ever, behind a record US$123.6bn in 2014,

according to LPC Collateral data. Wells Fargo is

predicting a new record of US$150bn of issuance

in 2018.

BOND BUCKETS

The LSTA, the trade organisation for the US loan

and CLO markets, said in its October 16 letter

that it fully endorses a revision of the definitions

of “loan securitisations” and “ownership interest”

in a way that does not hinder the CLO market.

“We urge the agencies to permit CLOs and

other loan securitisations to hold up to 10%

of their holdings in non-loan assets, including

corporate bonds, interests in letters of credit,

cash and short-term highly liquid investments

and derivatives,” the LSTA said.

It specifically called for modifying the loan

securitisation section so that it “clearly and

effectively” excludes traditional CLOs from the

definition of the term “covered fund”. This would

allow banks to purchase CLOs with non-loan

asset holdings, including bonds.

The organisation is also asking agencies to

reconsider the term “ownership interest,” noting

that the right to remove and replace a manager

is a central characteristic of a creditor in a debt

security, not equity as understood in the original

rule, according to Ganz. Banks can hold debt

securities of covered funds, but not equity.

The Investment Adviser Association also sent

a letter to the agencies last week, saying that it

agrees with the LSTA’s initiative to allow CLOs to

hold up to 10% of high-yield bonds.

“This modest percentage of non-loan assets

would allow loan securitisations to increase

diversification and enable their asset managers

to be responsive to changing market conditions,”

the IAA said.

Kristen Haunss