CLO Activity Dials Down in U.S., Europe

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The CLO new issue pipeline is finally slowing down from its breakneck pace of recent months. Moody’s Investors Service assigned provisional or definitive ratings to seven deals totaling $3.4 billion in the week ended Aug. 15.

These CLOs were backed mainly by broadly syndicated, first-lien senior secured loans. Of the seven, one, the $450 million CIFC Funding 2012-1, is refinanced notes in an existing CLO. The others, the $400 million Black Diamond CLO 2014-1, the $350 million Monroe Capital CLO 2014-1, the $535 million Adams Mills CLO, the $450 million JFIN Revolver CO 2014, the $750 million Octagon Investment Partners XX and the $500 million TICP CLO II, are new deals.

Moody’s did not assign ratings to any European deals during the week.

Year to date, Moody’s has rated 149 transactions in the U.S. with an effective date target par of $75.9 billion, and 17 transactions in Europe with an effective date target par of €6.9 billion.

Secondary market activity also dialed down this week with the bid wanted in competition (BWIC) volume totaling just about $250 million, according to research published today by Bank of America Merrill Lynch.

The report said that CLOs printed before the financial crisis (CLO 1.0) continued to see strong bids as they roll down the curve. Deals completed post crisis (CLO 2.0) and since the Volcker Rule took effect (CLO 3.0), on the other hand, saw some softness especially among mezzanine tranches following the weakness in the leveraged loan market over the past couple of weeks. Overall, spreads on U.S CLO 1.0 remained unchanged from last week’s levels while 2.0 and 3.0 double-A and single-A spreads widened out by 15 basis point to about 230 basis points and 330 DMs.

Activity was low in the European CLO secondary market, as activity appeared to wind down for summer. Around €50 million appeared on BWIC lists, mainly composed of items lower in the capital structure. Some 2.0 double B rated bonds traded within a range of around 610-630 basis points DM, slightly inside current new issue pricing. A few late vintage legacy equity line items also traded, broadly in line with expectations at IRRs of around 10%.

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