CLO market closes in on double-digit AAA spreads
Are double digits next?
Cedar Funding CLO VII, a $510.5 million transaction to be managed by Aegon Asset Management, is set to price the triple-As notes of its new collateralized loan obligation at just 100 basis points north of three-month Libor.
That spread is not only the narrowest this year to date, its also among the narrowest in five years, continuing a tightening trend on the senior notes issued by CLOs amid heavy investors demand over the second half of 2017.
Cedar’s deal had not priced as of Wednesday, according to Thomson Reuters LPC, but a presale report issued by S&P Global Ratings has indicative spreads.
The tightest spreads on deals that have priced so far in January include the 101-basis-point spread on Dryden 57 CLO, and the 103-point spread for both Neuberger Berman Loan Advisors CLO 27 and Madison Park Funding XXVII, according to Thomson Reuters.
Those deals, along with Octagon Investment Partners 35 at 106 basis points, are the only portfolios among 10 to have priced or launched this month with spreads inside 110 basis points.
The $117 billion market for new-issue CLOs in 2017 saw a steady descent of spreads throughout the year, culminating in an average 113-basis-point spread in December that was among the tightest since 2013, according to Thomson Reuters.
New-issue CLO issuance is at $6.9 billion for the month, according to JPMorgan research, even as managers compete for loans against a flurry of CLO refinancings that have topped $12.3 billion for the month.
Cedar Funding VII includes a two-year non-call and a five-year reinvestment periods. According to S&P, the portfolio’s asset concentration tilts toward debt from speculative-grade rated media, hotels, restaurants and leisure companies.