Prior to the recent dark age of credit, CLOs were kings in the land of the leveraged loan, a seat of power that diminished as the recession wore on and the loans in their fiefdoms lost value, causing a medieval-like bleeding of cash. But now sources say CLO cash is back, and the funds may once again be influencing the primary loan market.
“Many of the CLOs that were issued prior to 2008 have excess capacity,” said Tim Conway, chief executive officer at New Star Financial. “The combination of that capacity and light new issue volume have resulted in a tightening of spreads. In the near term, loan mangers will continue to be faced with excess capacity as the loans they manage amortize and refinance. However, much of that capacity will dissipate over the next few years as the reinvestment periods in those vehicles expire.”