Managing a loan portfolio these days may feel like a roller coaster ride with no seatbelt. In the past six weeks, the car has been inching up the incline, along with secondary loan prices and the number of repayments. However, market participants believe the loan market is about to take another plunge.

Nowhere else has the recent rally made more of an impact than in the CLO market. Since the start of June, the average spread for a triple-A-rated tranche of a U.S. CLO has fallen more than 200 bps to around 650 basis points, according to a recent Bank of America Merrill Lynch report. For double-A-rated and single-A-rated tranches, prices have risen past 45 and 23 cents on the dollar, respectively. In mid-May, the average price of double-A-rated tranche was around 23 cents, while the average price of a single-A-rated tranche was roughly 13 cents. As a result, many broadly syndicated vehicles have seen their overcollateralization cushions improve.

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