Collateralized loan obligations (CLOs) were the one of the hottest sectors of 2012, at least in terms of the number of deals, and December was no exception. Another active month, with some $7 billion of issuance, brought the total for the year to about $53 billion, according to various estimates. That was roughly four times the volume seen in 2011. It also marked the busiest year since 2005.
What’s driving issuance? Scott D’Orsi, a partner at Feingold O’Keeffe Capital, chalks it up to the benign default outlook for the noninvestment-grade, senior corporate loans that serve as collateral; the attractive pricing of these assets; and an expanding investor base. D’Orsi, interviewed by ASR’s sister publication, Leveraged Finance News, in late November, said that spreads on triple-A tranches of CLOs, which were then, and still are, in the LIBOR-plus-140s range, could tighten by 15 to 20 basis points in the relatively near term.