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Cairn brings 2013 CLO III into compliance

The UK and US based asset manager has restructured the €306m Cairn CLO III, the first post-crisis European leveraged loan securitisation, to bring it back into compliance with regulatory guidelines.

By
Rachel McGovern
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Cairn Capital has restructured Cairn CLO III to comply with amended European risk retention requirements. The deal replaces Cairn Capital as the investment manager with Cairn Loan Investments (CLI). 

The €306 million Cairn CLO III was the first second generation CLO in Europe following the financial crisis. It was initially issued in March 2013 and fell out of compliance with the European Banking Authority’s risk retention rules following changes to the new regulations. The restructuring brings the vehicle back into line with EBA risk retention rules as well as the US Volcker rule, the firm announced. 

Under the restructured deal, CLI will hold the required 5 percent exposure from the subordinated notes. The restructuring also involved other changes to the structure of the vehicle and underlying assets. The non-call period, reinvestment period and maturity of the notes were extended. The vehicle issued new class D notes as well as new mezzanine notes, subordinate to the class D paper. The existing class M subordinated notes were redeemed as well as issuing a further new subordinated tranche which is subordinate to the new mezzanine notes. 

The manager also adjusted the terms to exclude bonds and bring the vehicle into line with the Volcker rule. 

Cairn CLO III has generated IRRs of 11 percent per year for its equity investors, the firm announced, adding that the restructuring increases leverage at the equity level from around 5x to roughly 10x. 

“We are delighted to have closed this transaction with the aim of achieving compliance with risk retention guidelines. This was a process we have considered for some time since the regulator changed the risk retention rules, in order to ensure that our investors have the most liquid and marketable securities,” said CLI’s head of loans, Andrew Burke. 

The restructured capital structure is comprised of the following:

  • €181.5 million class A notes rated Aaa (Moody’s) / AAA (Fitch) paying a coupon of 140bps over Euribor; 
  • €28 million class B notes rated Aa2 / AA paying a coupon of 2.2 percent; 
  • €20 million class C notes rated A2 / A paying 3 percent over Euribor; 
  • €16.5 million class D notes rated Baa2 / BBB paying Euribor plus 4.1 percent; 
  • €22 million class E notes rated Ba2 / BB paying a 4.9 percent coupon over Euribor; 
  • €8 million class F notes rated B2 / B- priced at Euribor plus 6.6 percent and 
  • €30.05 million unrated subordinated notes. 

In August, the firm announced that Italian lender Mediobanca was taking a 51 percent stake in the firm, replacing original investor, Royal Bank of Scotland. 

Cairn has produced €40 million in revenues on average over the last three years. At the end of June it had €2.1 billion in discretionary assets, including pooled funds, management accounts and CLOs with another €3.1 billion in legacy asset management. The firm also had €9.1 billion in assets under long-term advisement, as of 30 June.