January 29, 2020 / 10:00 PM / 2 months ago

First AMR CLO auction set for Thursday

NEW YORK, Jan 29(LPC) - The first auction for Collateralized Loan Obligation (CLO) tranches with an embedded repricing feature is set for Thursday.

The auction is for five tranches of the TCW 2019-1 CLO, overseen by TCW, which has an Applicable Margin Reset (AMR) feature, according to sources. The so-called “cap margin,” the highest spread that will be accepted, for the US$240m senior Triple A slice is 115bp, according to a notice sent to investors. It currently pays 144bp.

Modeled on auction-rate securities, the AMR structure was developed to allow CLOs to be repriced without running afoul of Dodd-Frank risk-retention rules that forced managers to hold 5% of their fund.

After a 2018 US Appeals Court ruling that CLOs backed by broadly syndicated loans are exempt from risk retention, some firms decided to stick with the structure because of the built-in auction process that is pitched as cheaper and faster than a traditional refinancing.

MUFG arranged the first CLO to include the AMR structure in 2017 for a deal managed by Crescent Capital Group. Sancus Capital Management, a CLO investor, helped develop the technology.

“MUFG was the bank that developed the AMR concept with Sancus back in 2017, so we are excited to be a part of the first auction,” Asif Khan, head of CLOs at MUFG Global Markets, said in an emailed statement.

Along with MUFG, Janney Montgomery Scott, Brownstone Investment Group and BNP Paribas are signed on as broker-dealers that can bid for clients in the auction.

The auction is scheduled to start at 8 am.

TCW and BNP spokespeople declined to comment. A Janney spokesperson and a Brownstone representative did not immediately respond to an email seeking comment. (Reporting by Kristen Haunss; Editing By Jon Methven)

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