"Industry consolidation outweighs new issuance as the key driver for shifts in the manager rankings, in the U.S. and Europe," Moody's analysts wrote in the newly released July edition of "CLO Interest," which includes CLO manager league tables as of June 30, 2012, updated for the first time since August 2011.
The most noticeable changes in the U.S. were the following: Apollo Management entered the top five as a result of the acquisition of Stone Tower and Gulf Stream, both of which managed a large number of CLOs prior to the acquisition, and CVC Capital Partners entered the top 10 with the acquisition of Apidos."
Ares Management and Blackstone/GSO share the top U.S. manager spot by number of deals, managing 29 CLOs each (see chart below). Highland Capital Management remains the leader by dollar amount, managing nearly $14 billion of CLOs, all issued prior to the financial crisis.
In addition to manager consolidation, new CLO issuance and amortization of old-vintage deals contributed to the changes in manager rankings, which include both broadly syndicated and small and medium-sized enterprise CLOs Moody's has rated.
In the U.S., all of the managers in the tables either have issued new CLOs since the beginning of 2011 or expect to issue new deals this year. Since the beginning of 2011, Moody's has rated 61 new CLOs, 20 of which are managed by the top 10 managers.
Of course the flipside of that is that the rest of those 61 are managed by other firms, meaning that managers not backed by private equity and other large entities are getting deals done; they're just not sitting at the top of the rankings. "This year you've seen managers with one or two CLOs under management come back to the market," Wells Fargo analyst Dave Preston said in a phone interview.
And while consolidation could very well continue, one expected catalyst was recently removed from the picture, at least for now: U.S. CLO managers have gotten a reprieve from the 5% risk retention requirement mandated by the Dodd-Frank bill, which will not apply to CLOs until early 2015.
"This should allow smaller, more thinly capitalized asset managers to continue to issue CLOs and should remove a potential catalyst for increased manager consolidation," Preston and his colleagues pointed out in a July 12 report.
U.S. CLO volume for 2012 stands at nearly $20 billion, according to various analyst counts.
In Europe, where the primary CLO market has sat dormant since the financial crisis, consolidation represents the one way to move up the league tables, though it has done more to solidify positions than it has to induce major moves, Moody's says.
Alcentra and Intermediate Capital Managers remain at the top of the European CLO manager list, by both number of deals (14 and 13, respectively) and assets under management (€5.6 billion and €6.0 billion, respectively). Meanwhile, Blackstone/GSO's acquisition of Harbourmaster, and Carlyle's purchase four Highland European CLOs cemented their tied number three position (see chart above).
However, globally, Blackstone/GSO remains the CLO powerhouse, with 41 CLOs and nearly $19 billion under management.
Other significant findings by Moody's are as follows:
In the U.S., 15 managers - down from 16 since August 2011 because of industry consolidation - have 10 or more CLOs under management. Besides the managers listed in the tables, Alcentra, Fortress, Pinebridge, Black Diamond and ING manage 10 or more CLOs each.
Most of the top U.S. and European managers in the tables have acquired deals from other managers over the past three years. In the U.S., more than one third, and in Europe, around one quarter, of outstanding deals have changed hands since inception.
Since the peak of the credit cycle, the number of CLO managers in the U.S. has declined by 25% to 123; six new managers have entered the U.S. CLO market since 2008. At the same time, the number of CLO managers in Europe has declined by 24% to 46.
In the U.S., the 10 largest managers account for 36%, while in Europe, the top ten account for 52%, of all of the outstanding deals Moody's rates. In the U.S., 72%, and in Europe, 76%, of managers manage five deals or fewer.
