S&P upgrades CLO after mezz buy-back

Standard & Poor’s has upgraded a 2006 European CLO after it used money which would have gone to equity and the manager to bought back notes. The agency lifted ratings on the senior class A notes of Egret Funding CLO I by two notches to A+, as well as upgrading the four other rated tranches by either one or two notches.

S&P said that Egret, which is managed by a unit of Societe Generale known as Egret Capital Partners, bought €2 million of class B notes in January at a discount and cancelled them. In many cases senior noteholders (and rating agencies) would object to mezzanine tranches being repaid ahead of senior notes (see Buy-back buzz excites CLO managers). But in this case, according to S&P, the notes were bought using proceeds that would otherwise have been paid to the manager and to equity investors.

SocGen has also built up the par value of the deal through trading, notes S&P, increasing the par amount of the portfolio by €6.1 million since January, when S&P downgraded the deal.

According to Creditflux’s CLO Master, Egret Funding CLO I’s junior overcollateralisation ratio has gone from being 53 basis points under its trigger level last September to passing the test with a 1.24% cushion in February.