Apollo Said to Seek $400 Million CLO in First European Deal

Leon Black’s Apollo Global Management LLC (APO) is said to be planning its first collateralized loan obligation in Europe amid investor demand for securities backed by high-yielding debt.

The private-equity firm has asked Citigroup Inc. (C) to manage the sale of the 306.5 million-euro ($400 million) deal, ALME Loan Funding 2013-1, according to three people with knowledge of the deal, who asked not to be identified because the terms are private. It plans to include a 180 million-euro top-rated portion.

Europe’s CLO market was effectively shuttered following the collapse of Lehman Brothers Holdings Inc. in 2008 as investors shunned hard-to-value securities. London-based money manager Cairn Capital Ltd. issued a 300.5 million-euro CLO last month, the first since 2011.

“While there are challenges to a robust return of new issuance in European CLOs we expect to see more deals coming to the market over the next few months,” said Vishwanath Tirupattur, global head of securitized products research at Morgan Stanley in New York.

CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return. The Apollo deal can have as much as 10 percent of its collateral in high-yield bonds, said the people.

Spreads on top-rated portions of European CLOs fell to 150 basis points from 295 basis points at the start of 2012, according to data from Morgan Stanley. The AAA rated portion of Cairn’s CLO pays a spread of 140 basis points more than benchmarks, according to Bloomberg data. A basis point is 0.01 percentage point.

Charles Zehren, a spokeswoman for Apollo in New York, declined to comment on the deal. A spokesman for Citigroup in London, who asked not to be identified citing company policy, also declined to comment.

Two Deals

Before Cairn’s issue, two CLOs have been sold in Europe since 2008. Pramerica Investment Management Ltd. is also planning to raise a 300 million-euro CLO, people with the knowledge of the deal said.

The money manager, which oversaw 26 CLOs as of June 2012, raised a $721.9 million CLO deal in the U.S. in October, according to data compiled by Bloomberg. The U.S. market has been more active with $52.6 billion of deals backed by leveraged loans sold in 2012, Bloomberg data show.

Details of Apollo’s CLO are as follows:

Tranche        Size (eur)       Expected rating
A1 Notes       180 million       AAA
A2 Notes        25 million        AA
B Notes         25 million         A
C Notes         14 million       BBB
D Notes         11 million        BB
E Notes         12 million         B
Equity        39.5 million       N/A

To contact the reporters on this story: Patricia Kuo in London at pkuo2@bloomberg.net; Kristen Haunss in New York at khaunss@bloomberg.net; Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editors responsible for this story: Faris Khan at fkhan33@bloomberg.net; Paul Armstrong at parmstrong10@bloomberg.net

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