Collateralized loan obligation managers are on pace for a record annual issuance with $31.7 billion in first-quarter new-deal volume, according to Thomson Reuters LPC.
The tally included adding $10.7 billion in new CLO deals in March, as detailed in Thomson's monthly leveraged loans report released Wednesday.
Primary-issue CLO volume was $31.7 billion in the first quarter, topping the $26.7 billion in 2013 that was the previous high for first-quarter issuance.
The volume is nearly double the $17.4 billion that was issued in the first quarter of 2017, which ended with full-year volume of $117 billion as the second-busiest year on record. Annualized, the first-quarter 2018 volume would edge out the highest annual volume in the post-crisis era of $124 billion in 2014.
While debt investor demand is churning issuance, it is also allowing managers to continue tightening spreads on the rates offered in their deals. The average AAA discount-margin spread to 98 basis points last month, down from 103.9 basis points in February.
U.S. CLO reset and refinancing activity slowed in March to $6.6 billion and $1.4 billion, respectively. U.S. CLO assets under management grew to $518 billion.
While CLO deals are flowing, the pipeline of new loans for deal collateral is tightening. The $269.2 billion in leveraged lending volume in the first quarter is more than 33% off last year’s pace ($404.8 billion), even though institutional lending activity “remains high and above the average first quarter” historically, according to Thomson Reuters’ report.
European new-issue CLO volume also remained strong with €2.5 billion (US$3.07 billion) of new paper added during March, bringing the year-to-date issuance total to €5.4 billion. For the second consecutive month, average AAA spreads in euro-denominated CLOs widened as the margin increased to 74 basis points from 72 in February and 71 in January.
Morgan Stanley was the leading U.S. arranger for new-issue CLOs in the first quarter with $4.5 billion in volume across seven deals. JPMorgan and Bank of America Merrill Lynch had seven deals as well, but the volume totals were lower at $3.9 billion and $3.83 billion, respectively.
Citigroup was the top arranger for resets and reissues, pricing 11 deals totaling $5.23 billion in volume to finish ahead of Goldman Sachs’ eight deals with a notional value of $3.9 billion.