CLO Volume Reaches 15-Month High in September

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September was the busiest month for CLO issuance since mid-2015, accoriding to Thomson Reuters LPC.

Sixteen collateralized loan obligations totaling $8.24 billion were issued, the most since June 2015’s $13.15 billion level.

The September level was also only the second time in 15 months the aggregate size of deals has exceeded $8 billion (October 2015, $8.04 billion).

Issuance for the first nine months of the year was $46.1 billion in 103 deals, well short of the 149 deals totaling $78.6 billion during the same period of 2015.

CLO issuers in September – including six deals in the final week such as BlackRock Financial Management’s Magnetite CLO LTD 2016-18, priced through Goldman Sachs – brought out some of the largest deals of the year. The average portfolio size of $529 million for the 15 CLOs comprised of broadly syndicated loans was the highest level since August 2015 when issuers averaged $547 million.

The largest deal of the month was Credit Suisse’s Madison Park Funding XXII deal, sized at $809 million with an AAA tranche size of $516 million.

Year-to-date, the average deal size is $451 million.

Spreads continued to tighten, with five deals pricing the AAA paper with spreads in the 140-basis point range (compared to the 190s seen in February). BlackRock’s Magnetite deal priced at Libor plus 140 basis points, giving it the second-tightest AAA spread a CLO has earned this year.

Assets under management grew to $435 billion for U.S. CLOs, with post-crisis CLO 2.0s now comprising 92% of U.S. CLO assets under management. Thomson Reuters reports 35% are through deals issued since the start of 2015.

At this time last year, pre-crisis vintage CLO 1.0 transactions accounted for 17% of the market.

Eighty-four percent of U.S. CLOs are currently in their reinvestment period, according to Thomson Reuters.

The underlying asset values of CLOs are also improving, with the share of loans held by CLOs trading above par in the secondary market reaching 35% in the third quarter, up from 6% at the end of the second quarter of 2016. Loans trading at below 90% of par (90 cents on the dollar) fell to 9%, compared to 12% in the second quarter.

The average bid of U.S. CLO portfolios increased 44 basis points to 97.04 in September, and the median bid climbed to 97.31 from 96.88 in August.

The European market added €1.71 billion of issuance from four deals, bringing the year-to-date total to €11.8 billion – up from €10.3 billion through the same period last year.

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