A rush to catch up on a year of missed refinancing activity has led to record volumes in Europe’s market for collateralized loan obligations in the first two months of the year.
Just over 12 billion euros ($14.6 billion) of new issue, refi and reset paper has priced so far this year, surpassing a previous high of 7.3 billion euros in the first two months of 2018, with refinancings driving the heightened deal flow. For comparison, the largest total supply was in 2018, when overall volumes reached 45 billion euros over the year, according to Citi research.
CLO debt spreads have fallen faster and further than most expected, prompting more managers to try and improve the performance of their deals by reducing costs, updating transaction tests and language, and extending reinvestment periods through refinancing exercises.
Along with the intense refinancing activity, new issue supply--at 4.2 billion euros to date this year--is also broadly comparable with last year at this point, adding to the volumes.
It’s busier still in the U.S. with analysts at Bank of America calling it a ‘banner year’ for CLO refinancings and resets, while raising their 2021 refinancing sales forecast by almost 80% to $250 billion.
Whether this level of activity can last depends on a variety of factors; if there is sufficient demand for ongoing refinancings, how long debt spreads stay at current tight levels, and whether the market’s infrastructure can cope with processing the dramatic increase in volumes.
