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Late December rush of CLO refis/resets pushes market to record volume

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A rush of CLO refinancings and resets in December pushed the full-year tally to a post-crisis record of $165 billion – amounting to more than one-third of the entire market of $495 billion in outstanding CLO portfolios.

Meanwhile, new-issuance ended the year at $117 billion, marking the second-busiest year of the CLO 2.0 era behind only the $124 billion issued in 2014, according to Thomson Reuters LPC.

Managers of U.S. collateralized loan obligations reset $9 billion in CLOs in December and refinanced another $4.6 billion. It was the seventh time in 2017 that the volume of resets and refinancings outstripped new issuance ($9.3 billion in December).

Spreads on AAA-rated tranches of CLO deals continued to narrow to some of their tightest levels since 2013, with average discount margin reaching 113 basis points over Libor. “First tier” managers were able to negotiate spreads as low as 107 basis points, according to LPC.

The sharpest change among CLO holdings tracked by LPC was the drop-off for the aerospace engineering products firm Transdigm, which in December had only $1.54 billion in its loans held by CLOs, down from $2.89 billion in November, when it refinanced more than $3.36 billion in existing term loans and paid off an existing term loan D through a $798 million loan add-on, according to KDP Advisors.

The company, which formerly was the second most widely held loan asset in CLO portfolios, now qualifies as only the 17th most widely held. Asurion Corp. retained the top spot, at $2.95 billion, followed by Dell at $2.78 billion.

Citigroup holds the lead position on the new-issue U.S. arranger tables, having led 30 deals totaling nearly $18 billion for a 15% market share. Following up with Morgan Stanley (22 deals, $13.3 billion) and Bank of America Merrill Lynch (19 deals, $12 billion).

The market’s most active issuer was CBAM CLO Management LLC, totaling $5.14 billion in notes across four deals to finish atop both GSO Blackstone (six deals, $4.4 billion) and CIFC (five years, $3.65 billion).

New-issue European CLO volume finished 2017 at €19.2 billion over 48 deals, a 14% year-over-year increase. More than €7.3 billion occurred during the fourth quarter. Refinancings and resets totaled €26 billion on the year. Euro-denominated CLO AUM are now at €74 billion.

The CLO resets/refis picked up as the rapid pace of refinancings in leveraged loans continued through year’s end, with a final record tally of $933 billion in refinanced senior loans on the year – more than 23% above the previous high of $756.8 billion in 2013. New-money share of loans dropped to one-third of total activity, compared with 47% of the deal volume in 2016.

Including new issue, leveraged-loan issuance jumped 60% to $1.4 trillion in 2017, driven by investor demand for higher-yielding assets, according to LPC. That total also set a post-crisis record that was 24% higher than 2013’s total of $1.1 trillion, according to LPC. Two-thirds of the loan activity was through institutional loans.

Leveraged buyout loans were at their highest level ($126 billion) since 2007, making of 41% of all o f the year’s merger and acquisition-related volume and up 44% from the year prior.

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