Storm King Park is preparing a $494.1 million collateralized loan obligation (CLO), a deal secured by senior secured loans, cash and eligible investments from a borrower pool spanning five main industries, including software, hotels, restaurants and leisure.
S&P Global Ratings notes that primarily broadly syndicated speculative-grade senior secured term loans comprise the collateral pool. A substantial portion of the loan portfolio, close to 80%, is rated ‘B+’ to ‘B-‘, and all are rated ‘BB+’ and lower, according to the agency. Proceeds from the CLO will finance loans from borrowers in a range of industries, but the top five include software, hotels, restaurants and leisure, commercial services and supplies, machinery and containers and packaging.
Virtually all of the issued notes will be benchmarked on the three-month Secured Overnight Financing Rate (SOFR), except the $36.5 million, A-2 notes, which carry an interest rate of 4.71%.
Storm King Park has a higher total leverage, and a higher weighted average (WA) cost of debt than other broadly syndicated CLOs that gained preliminary ratings from S&P, the rating agency said.
Other differences include a lower (WA) spread, which showed a weaker underlying portfolio from a cash flow perspective. Yet the portfolio also had a lower scenario default rate, and higher (WA) recovery rate, demonstrating a stronger underlying portfolio from a credit perspective, according to an analysis from S&P analysts in Toronto, Chicago and New York.
The analyst participation aligns with where borrowers are based. The transaction requires that a minimum of 85.0% of the loan borrowers be based in the U.S. or Canada, while up to 60.0% of the collateral can be covenant-lite, according to analysts.
Analysts expect a September 22 closing, on the deal, for which Citigroup Global Markets is acting as the initial note purchaser. The deal has a two-year non-call period, and a five-year reinvestment period, according to S&P. Also, the notes have an October 2035 maturity date, according to S&P.
S&P expects to assign ratings ranging from ‘AA’ on the $54.7 million, B notes; ‘A’ on the $31.5 million, class C notes; and ‘BBB-‘ to ‘BB-‘ on classes D and E, respectively.
As for the deal’s environmental, social and governance considerations, the transaction documents prohibit assets related to a range of industries, including marihuana-related businesses, tobacco, thermal coal, coal mining and coal-based power generation, adult entertainment and endangered wildlife trading.