Blackstone’s GSO Said to Plan Its First Europe CLO Since ’08

GSO Capital Partners LP, the credit unit of Blackstone Group LP, (BX) plans to issue a 403.7 million-euro ($527 million) collateralized loan obligation for its first European deal since 2008, according to two people with knowledge of the matter.

The Grand Harbour I BV will include a 240 million-euro AAA rated portion and a 48.7 million-euro so-called equity piece, said the people, who asked not to be identified because the deal is private. Citigroup Inc. (C) is arranging the transaction which would be the largest in Europe this year, according to data compiled by Bloomberg.

GSO’s deal comes after almost 1 billion euros of new CLOs were sold in less than four months amid growing demand from investors for structured-debt investments as the yield for other types of fixed-income assets fell to a record low. Other pending deals in Europe include Carlye Group LP’s new CLO arranged by Barclays Plc, and Alcentra Ltd.’s transaction through JPMorgan Chase & Co.

Apollo Global Management LLC last week priced an increased 334 million-euro CLO with tighter spreads than expected a month earlier, according to Bloomberg data. The top-ranked notes were sold at 130 basis points more than the euro interbank offered rate, the data show. A basis point is 0.01 percentage point.

The spread on AAA rated portions of new European CLOs may fall to 120 basis points by the end of the year, according to a JPMorgan research report citing a client survey.

Gathering Assets

The yield for corporate bonds fell to a record low of 2.5 percent yesterday from 2.6 percent at the end of last year, according to Bank of America Merrill Lynch Global Corporate Index.

GSO has gathered more than 80 percent of the assets to be used to back the new CLO, as it sources part of the collaterals from the Harbourmaster Pro-Rata CLO 1, which was called late last year after delivering about 15 percent annual return for the equity holders, said the people.

Grand Harbour I will have a three-year reinvestment period and 2-year non-call, with legal final maturity in 2026, the people said. Currently, only the AAA notes are offered, as investors have been lined up for the other portions, the people said.

Andrew Dowler, a spokesman in London for Blackstone declined to comment. Simon Boughey, a spokesman in London for Citigroup, didn’t return an e-mail and a phone call seeking comment.

Harbourmaster Buy

Blackstone bought Dublin-based Harbourmaster Capital Management Ltd. in 2011, tripling its European loans under management to 11.5 billion euros.

GSO manages more than $36 billion of leveraged loans and currently has 52 CLOs under management, including 20 European deals.

CLOs pool high-yield loans and slice them into debt securities of varying risk and return, typically from AAA ratings down to B. The lowest portion, known as the so-called equity tranche, offers the highest potential returns and the greatest risk because investors are the first to see their interest payouts reduced when the loans backing the CLOs default.

Details of the CLO are as follows:

Class          Size (eur)       Expected rating
A1 Notes       240 million       AAA
A2 Notes        15 million        AA
B Notes         35 million         A
C Notes       22.5 million       BBB
D Notes       32.5 million        BB
E Notes         10 million         B
Equity        48.7 million       N/A

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

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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