Correction: Private Credit CLO Reinvestment Periods Set to Increase to Five Years

 

A previous version of this story stated that SMBC is marketing a new CLO for Churchill Asset Management. This statement was incorrect and has been removed.

Private credit CLO reinvestment periods are set to increase to five years after multiple transactions launched recently with longer duration.

Sources say that Blue Owl has a five-year new issue in the market and that Golub Capital is working on a reset with five years of reinvestment capacity. All three transactions are structured with a two-year call lock, sources say. Prior to these deals a market-standard private credit CLO had a four-year reinvestment period.

The longer reinvestment periods would lead private credit CLO structures to converge with their broadly syndicated cousins. 2024 has seen the BSL and private credit markets converge in various ways: companies are increasingly selective about which market to issue into depending on terms.

Pricing has also converged throughout the year. Golub priced another private credit CLO this week - Golub Capital Partners CLO 73(M) - with a triple-A spread of SOFR+ 162 bps, which is 2 bps tight of the senior triple-A notes on BSL deal Hayfin US CLO XV, which priced on May 10.

The tightening of the basis between private credit and broadly syndicated CLO tranches has led some investors to question whether they are getting compensated for taking on the extra risk.

Private credit is generally thought to price in an illiquidity premium, although one issuer told Reorg that this idea is often exaggerated since most tranche investors in private credit deals tend to hold to maturity.

According to Reorg’s data, a select group of private credit CLOs - then typically known as middle market CLOs - priced running five-year reinvestment periods in 2018. That vintage coincided with the tights of last decade’s credit cycle.